& w a i k a t o - t a i n u i f i s h e r i e s l i m i t e d

& Waikato-Tainui Fisheries Limited

A N N U A L R E P O R T 2 0 1 2

Tainui Group Holdings Limited (TGH) and Waikato-Tainui Fisheries

Limited (WTF) are the commercial entities of Waikato-Tainui Te

Kauhanganui Incorporated (WTTKI), the Shareholder and tribal

authority of Waikato-Tainui. Our role is to deliver commercial

returns on assets for the Waikato-Tainui people. This includes assets

that were returned by the Crown under the Waikato Raupatu Claims

Settlement Act 1995 as redress for raupatu (land confiscation) in the

19th century.

TGH’s principal objective is to maximise Shareholder wealth

through a sustainable asset portfolio. This is achieved through our

core business which is property investment and development.

Our strategy of identifying and growing high quality assets to

generate income from them, allows us to provide consistent, long-

term dividends for the benefit of current and future generations of

Waikato-Tainui.

These dividends are used by our Shareholder to meet tribal

expenditures and for charitable purposes distributed in the form of

grants, to Waikato-Tainui marae and registered tribal members for

education, welfare, health and social and cultural development.

Strong governance of our strictly commercial business model is the

cornerstone of our business philosophy. A clear distinction between

wealth creation and the responsibilities of distributing wealth has

been agreed between us and the Shareholder. The two parties have

signed a Statement of Corporate Intent (SCI) that documents all the

necessary understandings that must exist between us.

Our core business is

property investment and

development.

Our business

1

Tainui Group Holdings Annual Report 2012

2 Financial performance summary

3 Year in review

4 Our strategy

6 Our structure

7 10 years in review

12 Business review

Chairman’s report

CEO’s report

Overview

Operational review

Financial overview

Sustainability

Growth

Partnerships

34 Our people

Our management

Our team

38 Our directors

Board of directors

Directors’ report

Governance

48 Financial information

Five year trend statement

Financial statements – Tainui Group Holdings Limited

Financial statements – Waikato-Tainui Fisheries Limited

cont

ents

2

Return on Shareholder funds 6.7%10.3%

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

Dividend $10.5m$11.0m

The dividend increases by $0.5m annually.

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

Total assets $658m$694m

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

Revenue growth 16.3%57.7%

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

Net profit $23.1m$39.9m

Unrealised movement in value of assets provided favourable increases.

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

Net operating profit $14.9m$20.7m

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

20112012

Financial performance summary (TGH and WTF)

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

3

Tainui Group Holdings Annual Report 2012

NOvemBeR WhiRiNga-aa-RaNgi

auguST heRe-TuRi-kOOkaa

hOyTS at Te aWa opens with the global premiere of Billy T: Te Movie

The Base gift card is launched

Tgh wins human Rights Commission: Special award for cultural references and bi-lingual signage at The Base and in particular, Te AWA

SepTemBeR mahuRu

The Callum Brae Tainui Joint venture sales surpass 600 sections

Novotel Auckland Airport wins Auckland Architecture Awards: Commercial architecture and interior award

DeCemBeR hakihea

public consultation by Hamilton City Council for Ruakura commences

TGH a finalist in the New Zealand Institute of Chartered Accountants:

2011 Best annual Report by a Corporate Organisation

New Te arataura formed and unanimously approves appointment of Sir henry van der heyden as Tgh director and appointment of Joanna perry as an advisor to the Tgh board.

Tgh wins TVNZ Marae Investigates: 2011 maori of the year – business section

Lease of Te AWA complete for stages 1-4

maRCh pOuTuu-Te-RaNgi

TGH white water rafting team building

Raukura hauora O Tainui opens its office as the first non-retail tenant at The Base

Demolition commences for Tgh head office at 6 Bryce Street, Hamilton

TGH’s 2011 annual stakeholder function

Resource consents for the development of the balance of land at The Base is approved

Ryman shares sold

Tainui Group Holdings Annual Report 2012

JuNe pipiRi

WTTki vs Tgh car rally

Bank debt facility for $50 million signed, increasing total lending facilities from $200 million to $250 million

apRiL paeNga-WhaaWhaa

Stage 3 at Te aWa opens

Novotel auckland airport hotel opens

may haRaTua

FeBRuaRy hui-TaNguRu

JuLy hOONgONgOi

OCTOBeR WhiRiNga-aa-Nuku

4

Our visiOn

Our fOrmula

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

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

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

We maintain a strong balance sheet with prudent borrowing levels.

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

CustomersWe cultivate long-term tenant relationships for mutual benefit.

ShareholderWe reflect Waikato-Tainuitanga in business wherever appropriate.

We provide a consistent dividend stream.

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

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

We encourage cultural, social and environmental responsibility.

We invest in the team.

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

Our Objective

Our strategy

5

Tainui Group Holdings Annual Report 2012

OBJECTIVE PROGRESS OUTLOOk

GrowthGrow beyond

$1 billion in high quality total assets

by 2021

OperationalDeliver returns

PeopleValue employee

contributions

PartnershipsCreate enduring

relationships

SustainabilityDifferentiate from

competitors

Deliver a long term

sustainable dividend

stream.

Be a recognised

contributor to the

region’s economy.

Be the leader or

preferred partner

of significant

development projects.

TGH assets grew by 5.5% to

$694 million in 2012.

The Base is New Zealand’s

largest single retail development

by area and Australasia’s only

hybrid (large format and mall)

centre. Businesses at The Base

employ 1,528 full and part-time

employees.

The completion of award winning

Novotel Auckland Airport has

contributed $59 million to total

assets.

Ruakura will be a

unique commercial

development that

will become a

project of national

significance

creating growth and

employment.

Deliver investment

returns in excess of

market based hurdle

rates.

Weighted average cost of capital

methodology used to assess

performance of TGH’s existing

asset portfolio and inform

investment decisions.

Assess all future

capital and

investment projects

to determine

if returns meet

required hurdle rate.

To develop highly

competent, motivated

and engaged people.

To enable people

to express their full

potential.

Implementation of the People

Strategy 2025.

Graduate recruitment evening

held in March 2012 to showcase

TGH achievements.

Medical checks and flu jabs

offered for all staff. Weekly

provision of fresh fruit provided to

the team. Team building events.

Recruitment and

retention focus on

creating a motivating

and positive

environment.

Create enduring

relationships with

partners whose views

are closely aligned

with TGH.

A group of preferred, strategic

partners to provide appropriate

advice and support as

required which includes banks,

construction, legal, financial and

advisory services. We profile a

sample of our strategic partners

on pages 30 to 33.

Regular review

of long-standing

relationships and

active engagement

with principals to

ensure that our

business needs are

being met.

Differentiate from

competitors by

completing projects

that reflect the

enduring place in New

Zealand society of

Waikato-Tainui.

Novotel Auckland Airport hotel

is infused with Waikato-Tainui

design features providing the

first insight into New Zealand

culture for many travellers.

The Base, and in particular,

Te AWA design features are

embedded with cultural elements

from Waikato-Tainui.

The current

development of the

new TGH offices

at 6 Bryce Street,

Hamilton will feature

Waikato-Tainui

influences.

kEY STRATEGIES

Waikato-Tainui Te kauhanganui incorporated is

the Shareholder of both Tainui group holdings

Limited and Waikato-Tainui Fisheries Limited.

Waikato-Tainui consists of over 60,000 registered iwi

members. Each iwi member affiliates to at least one of

the 68 Waikato-Tainui marae. Each marae tri-annually

elects three representative iwi members for the appointed

WTTkI – or the Tribal Parliament. One additional

representative to the Tribal Parliament is appointed by the

Head of the kaahui Ariki – currently kiingi Tuheitia. From

the Tribal Parliament, 10 members are elected onto its

executive – Te Arataura, and one is appointed by kiingi

Tuheitia. Te Arataura oversees the tribal operations which

are based in both Hopuhopu and Hamilton.

Our structure

6

People Property Management

Chief executive Officer

Property Investment and Development

Legal and Administrative

Services

General Manager Corporate Services

Group Treasury

Chief Financial Officer

Corporate Financial Services

General Manager Property

Tgh Corporate Structure

Waikato-Tainui iwi members

68 Waikato-Tainui marae

Waikato Raupatu River Trust

Waikato Raupatu Lands Trust

Tainui Group Holdings Limited

Waikato-Tainui Fisheries Limited

Waikato-Tainui Te Kauhanganui Incorporated (tribal parliament)

Te Arataura

7

Tainui Group Holdings Annual Report 2012

decisions.” Agreement was

eventually reached for non-

strategic lands to be sold but

on condition that the company

would acquire other (more

productive) parcels of land

over time to compensate, and

a process was established

to help guide future land

decisions. key parcels, such

as The Base, were also placed

back in tribal ownership under

‘Pootatau Te Wherowhero

title’, with TGH retaining

management responsibilities.

As land was sold, proceeds

were placed in a managed

fund that could be liquidated

easily as opportunities

were identified. Leases also

Chairman John Spencer and CeO

mike pohio reflect on a decade

of Tgh’s operation as a separate

commercial entity, and provide

some insights into the company’s

thinking throughout that period.

eaRLy yeaRS 1995-2002

In 1995 Waikato-Tainui settled

its Raupatu or confiscation

claims for $170 million,

comprising both land and

cash. In 1997 all the property

transfers from the Crown to

the tribe were completed, and

TGH was established.

Positive decisions were

taken in those early years.

TGH invested in Hamilton

Riverview Hotel Limited with

Hamilton City Council and

Accor in 1998, and the Novotel

Tainui was built in 1999.

The 655 section residential

development at Huntington

commenced in 2001, and The

Base was identified as a high

priority for future development

(along with TGH offices

and rationalisation of non

performing assets).

However, a number of other

early business ventures failed

due to inadequate systems

and processes, and some $40

million was lost. While banks

had earlier lent money to TGH,

they were now reluctant to

renew debt facilities.

ReBuiLDiNg 2003-2006

The tribe took stock, and

in 2002 John Spencer was

approached to advise on a

new direction. TGH took over

all commercial assets, as up

till then some had been held

under other structures. The

settlement included over

450 property titles, but some

were little more than roadside

strips, so a full stock-take was

required.

A Board ‘charter’ was

eventually written for the

company, providing for

six directors – three tribal

appointees and three

independents. The charter

stipulated that one of the

independent directors must

be the Chairman. Board

processes were reviewed,

and governance standards

established, based on the

nine principles set down in

the Securities Commission

guidelines (now the Financial

Markets Authority). New

Board appointments were

made, including the Hon.

koro Wetere, and John

Spencer became Chairman.

A new management structure

was established.

“The most important task

was to restore the confidence

of lenders. Without the ability

to borrow, the company

wouldn’t be able to proceed

with developments such as

The Base. This meant at least

three years of TGH proving it

could live within its means,”

says Spencer.

The only way to achieve

this was to sell assets and

establish a pool of funds.

“This was a difficult time,”

says Spencer. “Having just

had their land returned,

and given their ancestral

connections to it, the

tribe was faced with hard

2003Restructured management team commence

John Spencer appointed as Tgh’s Chairman

huntington development commences

2004Ownership of commercial assets transferred from the Shareholder to Tgh

Raukura moana Seafoods ceased harvesting and selling fish

The Base construction commences

8

received early attention, with

a formal register created, and

evaluations made of their value

for either income or strategic

purposes. For those that

were retained, independent

valuations were needed for

balance sheet purposes and to

reach agreement with tenants

to ensure fair market rentals

were being paid. “Processes

like these were vital steps in

establishing a professional

commercial reputation for the

company,” says Spencer.

The company’s big break

came in 2003 when Sir

Stephen Tindall, owner of

The Warehouse, agreed to become the anchor tenant at

The Base, and to joint venture

the development with TGH

on a 50/50 basis. Crucially, he

also advocated for the project

with Hamilton City Council,

who at that time seemed intent

on rejecting TGH’s resource

consent application so as to

protect Chartwell Shopping

Centre. “Without his personal

intervention, The Base would

not exist today, and once The

Warehouse was established

on the site, it attracted other

‘big box’ retailers, enabling the

project to gain momentum,”

says Spencer.

2005managed fund investments purchased

hamilton Riverside Casino sell down of 15% minority interest

Raukura moana Fisheries 30% sell down

The Base opens its first large format retail stores

2006puka park Resort sold

acquisition of two properties in hamilton CBD for $13m

NeW DiReCTiONS 2007-2012

Formal discussions took

place between TGH and the

tribe to resolve a key issue

– consistency in dividend

income from TGH, making it

possible for the tribe to plan

its activities with certainty.

John Spencer says a trade-off

had to be made between the

desired level of dividend and

reinvestment in the business

(to enable capital growth).

In 2006 TGH undertook to

guarantee an annual dividend

of $10 million for 5 years, and

the company was given a

strict new focus – to maximise

shareholder wealth.

In August 2006 Mike Pohio

replaced Steve Murray as

Chief Executive. By now TGH

was once again able to borrow

money for development, via an

initial $30 million facility from

Westpac. The timing could not

have been more fortuitous.

In 2007 agreement was

reached with The Warehouse

to sell its 50% share of The

Base, and with borrowed

capital, TGH was able to take

outright ownership. Placing

all TGH’s eggs in one basket

was however a risk: the plan

for developing the rest of

The Base was still only in its

conceptual stages. Three

factors swayed the decision:

the price was never going

to get cheaper, internal

confidence TGH could go

it alone and 12 hectares on

the northern boundary that

could now be added to the

development.

It had become apparent that

further development of The

Base had to be TGH’s single

most important strategic

investment. There were simply

no other comparable options.

By this time the majority of

potential asset sales had been

realised. Projecting forward,

the company also knew that

income from section sales at

Huntington were coming to

an end.

Meanwhile, the Ibis-Tainui was

built, and a close relationship

was developed with Ngai Tahu

Holdings Corporation.

Throughout this period, TGH

became very concerned

about an over-heated property

market. If it deflated suddenly,

property values could

plummet, risking a decline

in equity. The company did

however take confidence that

its debt to asset ratio was well

20042003

$m

-40

-20

0

20

40

60

80

20122011201020092008200720062005

40

23

34

(28)

52

6469

62

2218

NeT pROFiT (TGH AND WTF)$m TOTaL aSSeTS aND DeBT (TGH AND WTF)

20042003

0

100

200

300

400

500

600

700

800

20122011201020092008200720062005

13

316

238

180166

694658

529497

536

378

Total assets

Debt

1878875 180734 6

9

Tainui Group Holdings Annual Report 2012

2007Construction of ibis-Tainui hotel commences

$30m debt facility with Westpac established

2008ibis-Tainui opens

purchase of shares in Ryman for $37m

$14m of shares in aotearoa Fisheries Limited received

50% of The Base acquired from the joint venture partners, The Warehouse group

planning for Te aWa commences

2009partial selldown of managed funds investments

Construction at Te aWa stage 1 commences

Construction of The Base large format retail ends

2010Full selldown of managed funds investments

Construction at Novotel auckland airport hotel commences

planning for Ruakura commences

Construction of Te aWa stage 2 commences

$50m debt facility with BNZ established

Debt facility with Westpac is increased to $100m

That quality came not just

from attention to detail. “Both

The Base and Te AWA are

hugely complex equations”,

says Pohio. “It included

selection of the right tenants,

their placement in relation to

each other, their infrastructure

and support needs, and the

management of everything

from security to waste to

maintenance.”

Te AWA was partially financed

by a new $50 million debt

facility, this time from the BNZ.

Spencer says the signing

of this agreement was very

significant: the BNZ had

written off a loan in the early

years. Having them back was

a very special moment, and

another important milestone.

In 2008 the company

liquidated its managed funds,

and these proceeds were

also earmarked for Te AWA,

along with a new opportunity.

TGH and Ngai Tahu Holdings

Corporation had signed a

co-investment agreement, and

the chance to jointly purchase

shares in Ryman Healthcare

came up. TGH bought 4.5% of

Ryman. “We very much saw

it as a way to consummate

the relationship,” says Pohio.

under its self-imposed 30%

limit, and that by now all its

properties were insulated by

either strategic value or solid

tenancies.

Nevertheless, as the Global

Financial Crisis (GFC) hit,

TGH postponed most planned

developments save The Base.

Planning for Te AWA, the mall,

was underway, and in 2008

Spencer says the company

made “its biggest-ever call,

to proceed with this new

development despite the

ongoing impact of the GFC.”

The Board however issued

a caveat: 80% of tenancies

had to be signed up before

construction could begin on

each stage of development.

Farmers Trading became the

anchor tenant and construction

commenced in January 2009.

Pohio says that achieving this

in a market where no-one

else could attract tenants was

an absolute turning point for

the company. “What swung

it was prospective tenants’

understanding of what TGH

was capable of, and what Te

AWA could mean for their

competitive position.”

“For perhaps the first time,

the penny dropped that TGH

was a property investor, not a

property developer. In other

words, we weren’t going to

build this flagship asset and

then flick it on in six months,”

says Spencer. “Tenants saw

that we were flexible in

meeting their individual needs,

and we had a real commitment

to quality.”

20042003

$m

0

2

4

6

10

8

12

20122011201020092008200720062005

11.0

1010.510.510.7

7.4

5.5

3.4

0.0

10

21%

0%

35%

46%

68%

57%

84%

64%70%

53%

Dividend

Dividend % of NPAT

aNNuaL DiviDeND (TGH AND WTF)

2004

Te AWA

The Base (excluding Te AWA)

Novotel Auckland Airport

Farms and other investment property

Hamilton CBD properties

Callum Brae Tanui

2003

$m

0

20

40

60

80

100

120

20122011201020092008200720062005

CapiTaL expeNDiTuRe (TGH)

1 0

“Although we sold out in 2012

to help finance the Novotel

Auckland Airport hotel, we

maintain close ties with Ngai

Tahu, and are always on

the look-out for other co-

investments.”

The Novotel Auckland Airport

hotel wasn’t specifically in

TGH’s strategic plan, though

it had looked at potential

hotel developments. It came

about unexpectedly through

pre-existing relationships

with Accor and Auckland

International Airport, but it was

definitely an opportunity worth

checking out. “Airport hotels

are a very sound commercial

investment. Auckland had

none on its campus, and with

a 70% share, we got an added

boost to our future cashflows,”

says Pohio.

“Equally importantly, along

with Te AWA, it entrenched

our reputation for creating

top quality assets,” he

says, “and reinforced our

commitment to reflecting

Waikato-Tainui ownership

in our developments. The

hotel, which has since won

2011Construction of Te aWa stage 3 commences

Te aWa stage 1 & 2 opens

$50m debt facility with BNZ signed increasing debt capacity to $200m

2012Novotel auckland airport opens

Sale of shares in Ryman

huntington development nears completion

Te aWa stage 3 & 4 opens

regional and national design

and architectural awards, is a

showcase of New Zealand’s

rich cultural heritage.”

The Accor Group again

featured as a commercial

partner in a TGH-led hotel

development, and was a good

example of TGH’s approach to

joint-venturing. “The reality is

that we don’t want to finance

everything ourselves, even if

we could. And more than that,

it recognises that each party

brings different skills to the

table,” he says.

TGH has developed close

working relationships with

a range of professional

advisors as well. These

include: architects Ignite

and Warren and Mahoney,

property development

project managers Greenstone

Group, engineers Boffa

Miskell, construction

company Naylor Love, law

firm Bell Gully, auditors

PricewaterhouseCoopers,

financial advisors Ernst Young

and public affairs advisors

Busby Ramshaw Grice.

Partnerships will again be

to the fore in the inland port

and freight hub at Ruakura.

All these developments have

brought a higher public

profile, and from 2006, TGH

started to come out of its

shell. Up till then, it had been

a case of proving by doing.

What changed was a survey

the company did back then of

public attitudes. “There were

many misconceptions, and

a lot of negativity. It showed

we had to get out there more

and tell people what we were

doing, and by then we had a

good story to tell.”

Those efforts in recent years

have included an annual event

at which the company’s results

are presented to community

leaders, councils, the business

community and Members of

Parliament. They have also

seen the publication of an

enhanced annual report, one

that the New Zealand Institute

of Chartered Accountants

recognised as a finalist in

the main category of their

2011 Annual Report Awards.

In recent years it has been

augmented with a special

shareholder supplement that

provides further details on the

financial results. TGH’s website

has also had a refresh to make

it more user-friendly.

Behind the scenes, the

company puts a lot of effort

into shareholder consultation

via an annual strategic

planning session with Te

Arataura, the tribal executive,

and regular presentations to

Te kauhanganui, the tribal

Parliament. The Chairman and

CEO also have regular contact

with the Te Arataura Chair on

day to day matters.

Spencer and Pohio have

observed more than one

sea change in the past few

years in attitudes toward

the company. “The tribe

are certainly pleased with

what’s been achieved, and I

think the wider community

has now accepted that what

happened in the early days

after the settlement is well

and truly in the past,”says

Spencer. “More recently too,

people have moved past the

idea that we’re some kind

of threat.” The final stages

of The Base were famously

blocked in late 2009 by what

was known as ‘Variation 21.’ It

was overturned by the High

Court, and following the 2010

local body elections, the issues

were successfully resolved

by face to face negotiation.

“We now have a real sense

that Hamilton and the Waikato

see TGH as part and parcel of

their future.”

“Our track record shows

that we’re here for the long

term. We’re big investors

in the local economy. We’re

into partnerships. We value

long-term relationships. And

Ruakura is potentially the

biggest future driver of the

Waikato economy,” says Pohio.

For John Spencer, these kinds

of initiatives mean that iwi-

owned investors are going

to be a crucial part of New

Zealand’s economy in the

years to come.

One myth he still does want

to dispel though is that

Waikato-Tainui, and Ngai Tahu,

are ‘rich.’ “Take the annual

dividend and divide it by

60,000 members of the tribe.

It’s a few hundred dollars each.

And if you liquidated TGH

tomorrow – sold everything,

paid off the loans – each

person would get a one-off

cheque of about $6,000. So

there’s a long way to go yet,

but the trick is to stay positive

and to keep looking for what’s

possible.”

koro’s involvement with the Waikato-Tainui

Raupatu (land confiscation) settlement and

its aftermath goes back a long way.

He was a member of successive

Parliaments that created the Waitangi

Tribunal, extended its remit so it could

hear claims back to 1840 and expanded

its resources so it could process more

claims, more quickly. He was also involved

in several of those decisions in various

official capacities.

Although Waikato-Tainui finally settled

their Raupatu claim by direct negotiation

with the Crown, they were only able to do

so in this context.

Transition

koro was instrumental in the consolidation

of the tribe’s commercial operations in

the early 2000’s, signing off on a plan that

saw TGH separated out and given a single

objective – to maximise returns to its

Shareholder.

After that early restructuring, a long

period generating revenue and steady

accumulation of assets followed.

Development also started on The Base.

koro derives great satisfaction from what’s

been achieved there today, particularly

the tribal elements that infuse the whole

complex. “Our history is implanted in it.”

The late 2000’s were also a challenging

time with the Global Financial Crisis. “Our

valuations went down, and several projects

were put on hold, but we were still able to

pay the dividend.”

By the time the Novotel Auckland Airport

hotel came along, TGH’s assets had grown

sufficiently for the company to finally

normalise its banking relationships.

“That was a big thing. They could see we

were all reading off the same page, that

we had good asset backing and we were

determined to move ahead.”

Responsibilities

Before any action can be taken on land it

manages or owns, the company’s code

of ethics requires it to consult with the

relevant hapuu of Tainui.

Apart from carrying out his normal

Director’s duties, koro has played a

pivotal role in undertaking this work,

not least because of his knowledge of

history and the fact that he knows so

many of the people concerned.

For example, following koro’s

consultations, the Novotel Tainui, The Base

and the Ibis Tainui all received the green

light from the local hapuu, who then went

on to erect their own poupou at the sites.

With Ruakura, the latest development,

consultation with Tauranga Moana iwi

was involved. “Tauranga people have

had a long association with us,” koro

explains. “When we went to see them

about Ruakura, they were very keen.

These working relationships go back

some years, well before our time, and can

always be rekindled.”

Tribal and commercial alignment

Looking ahead, koro says that TGH and

the Waikato-Tainui Executive are likely to

come together more often than in the past.

“We need to continue to communicate

with one another, continue to work

together, and for the tribe to understand

the long-term steps we are taking to

develop and expand the assets.”

“People at every level of the tribe,

right down to the marae, need to be

involved and understand what this is

about. Communication is of the utmost

importance, from the top down. Our young

people need to be involved to ensure the

whole operation is based on true transition

and succession.”

On his retirement, koro says it’s important

to place on record the contribution of the

independent Directors he has worked

with over the years. “I want to especially

acknowledge the time and expertise

they have given, which I have greatly

appreciated.”

Hon. Koro Wetere

A lifetime of service

The hON. kORO WeTeRe haS SeRveD aS a TRiBaLLy-appOiNTeD

DiReCTOR ON Tgh SiNCe apRiL 2002, aND ReTiReS ThiS yeaR.

he WaS pReviOuSLy a memBeR OF paRLiameNT, hOLDiNg The eLeCTORaTe SeaT OF WeSTeRN

maORi FOR 27 yeaRS, aND WaS miNiSTeR OF maORi aFFaiRS

FROm 1984 TO 1990.

1 1

Tainui Group Holdings Annual Report 2012

1 2

OveRvieW

TGH made good progress in 2012.

General economic conditions remained subdued

during the year, and the European debt crisis created

great uncertainty in late 2011 and early 2012.

However, the company remained very much focused

during the first six months on completing the Novotel

Auckland Airport hotel and Te AWA, the specialty

retail mall at The Base.

From the chairman

It’s my pleasure to introduce

the 2012 Annual Report of

Tainui Group Holdings Ltd

(TGH) and Waikato-Tainui

Fisheries Ltd (WTF).

2012 FiNaNCiaL ReSuLTS

We are pleased with the 2012 results, despite the flat

to negative market conditions experienced through

the year, especially in the retail sector.

The combined net operating profit for TGH and WTF

was $20.7 million, up $6 million (40%) from 2011.

The increase is largely due to revenues from Te AWA

and the Novotel Auckland Airport hotel. Stage 3 of

Te AWA opened in April with the remaining planned

stage in August, and the Novotel Auckland Airport

hotel opened in late May.

For the first time, income from the hotel and retail

tenancies comprised the majority of the company’s

revenue, though we continue to derive great stability

from long-term commercial and Crown leases.

Residential property earnings were lower than 2011,

recognising that we are coming to the end of the

Callum Brae Tainui development at Huntington. 29

sections were sold during the year.

The cash flows they will generate over time are critical

to maintain a steady dividend to our Shareholder and

also to help finance development of the freight hub

and inland port at Ruakura.

The Base has been TGH’s primary focus for almost

a decade. While there are still several stages to

go before the whole complex is complete, for the

first time we have sufficient certainty there to be

able to concentrate our attention on another major

development. Ruakura is that new project, and this was

very much the focus during the second six months.

All the necessAry structures, policies, processes And stAndArds thAt Are criticAl for commerciAl success for tGh hAve been entrenched. KuA oti te puumAu o nGAA puunAhA, nGAA tuKAnGA, nGAA tiKAnGA me nGAA pAerewA mAhi e orA Ai te mAhi pAKihi A tGh.

John Spencer, Chairman

business review

1 3

Tainui Group Holdings Annual Report 2012

The net profit for TGH and WTF was $40 million, up

73% from $23 million last year. This largely reflects

the improved operating profit.

TGH’s and WTF’s combined dividend to its

Shareholder of $11 million was up $0.5 million from

2011, and the return on Shareholder funds improved

from 6.7% to 10.3%.

There was little movement in our balance sheet this

year. Total assets at 31 March were up $36 million to

$694 million.

On the plus side, re-valuations recognised Ruakura

advancing as a development proposition over the past

12 months. The Base also rose in value, now that Te

AWA is completed and additional resource consents

have been granted. The sale of our Ryman shares for

$57 million gave a capital uplift, though this is now

represented by an increased value of the property in

which we invested the proceeds.

The value of our swap book has fallen into negative

territory, not an unexpected result given the fact that

interest rates remained near historical lows. The value is

of course unrealised, and when interest rates eventually

rise, the book will come back into positive territory.

Borrowings have fallen slightly to $180 million. During

the year TGH took the opportunity to renegotiate its

existing debt facilities. These were increased $50 million

to $250 million in anticipation of upcoming projects.

TGH’s debt is currently budgeted to grow to around

$200 million by the end of the 2013 financial year and

$235 million by 2014. This however has to be seen

in the context of expected growth in the value of the

company’s assets. TGH has a stated policy that debt

cannot represent more than 30% of total assets. It is

currently sitting at 26%.

I’d also reiterate the points I made in last year’s report,

that apart from retained earnings, debt is currently

the only source of capital for the company. We are

also in the fortunate position to have been funding

developments over the past three years during a

period of low borrowing costs.

pORTFOLiO vaLue By SeCTOR TGH + WTF

Investment properties 81%

Fishing 5%

Hotels 11%

Development 3%

3418 1512

Trading Non-Trading

-60

-45

-30

-15

0

15

30

45

60

19

218

(40)

2008 2009 2010 2011 2012

$M

1816

NeT pROFiT aFTeR miNORiTy iNTeReST TGH + WTF

NeT OpeRaTiNg pROFiT aFTeR miNORiTy iNTeReST TGH + WTF

0

2

4

6

8

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14

16

18

20

2008 2009 2010 2011 2012

$M22 21

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NeT pROFiT aFTeR miNORiTy iNTeReST TGH + WTF

-30

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23

(1)

(27)

1438 34

TGH WTF

2008 2009 2010 2011 2012

$M

TOTaL aSSeTS TGH + WTF

0

175

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TGH WTF

2008 2009 2010 2011 2012

$M

13

516

1413

680645

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STRaTegiC DiReCTiON

As I’ve stated in previous years, while the company’s

primary objective is to maximise returns to its

Shareholder, the strategies needed to achieve that do

not focus on short-term financial results.

TGH is a firmly committed multi-generational investor,

looking to grow and add value to its investment

portfolio over the long term.

In recent years our business has become more

specialised, with the emphasis on property

investment. This is in part a natural progression: as

we invest more deeply in our property holdings, they

increase in value relative to our other assets.

However the company has consciously sought to

diversify within that portfolio. Once The Base is

complete for example, it is unlikely we will pursue

other retail opportunities.

Hence also the current focus on Ruakura. If the

necessary Regional and District planning approvals

are obtained, it will become the main development

focus for the company for several years.

In 2012 the company continued to enhance existing

partnerships and develop new ones, as this long-

established strategy will remain a key to its future

success. For example, TGH is looking to sign a co-

investment agreement with Te Arawa Group Holdings

Limited, the result of several meetings during the year.

TGH also invested in our people, supporting training

at all levels and recruiting new staff. Interest in our

graduate programme continues to grow, which is

extremely heartening, and at some stage in the future

we may expand the programme beyond four to five

places. At a recent recruitment evening, we had 27

attendees, mostly of Waikato-Tainui descent, up from

19 last year.

Ruakura, hamilton

Te aWa, The Base

1 5

Tainui Group Holdings Annual Report 2012

gOveRNaNCe

In February I gave notice of my intention to resign on

30 June 2012, after almost a decade on the Board. On

30 March, Te Arataura, the Executive of Waikato-Tainui,

unanimously approved TGH’s recommendation that

Sir Henry van der Heyden, the outgoing Chairman of

Fonterra, replace me as an Independent Director. At

its July meeting this year, the TGH Board must elect a

new Chairman.

From 1 April 2012, chartered accountant and

professional director Joanna Perry joined TGH as a

specialist advisor to the Board. It has long been our

intention to find a replacement in this role for Rob

McLeod, who performed this function for several years.

I would like to thank retiring Board members

Rukumoana Schaafhausen and Rahui Papa for their

work during the year, and welcome Paki Rawiri and

Hemi Rau.

I do however want to pay a very special tribute to the

Hon. koro Wetere, also retiring, who has served with

me on the Board for the whole decade I have held the

role of Chairman. His has been a pivotal role. koro

has been the rock-solid bridge between the tribe

and TGH, and between ourselves and other tribes

with whom we have sought to establish commercial

relationships over the years. He has also been an

active and engaged member of the Board throughout.

He, as much as anyone, deserves enormous credit for

where the company is today.

Improving the capability to deliver

Rukumoana Schaafhausen

has been a member

of Te kauhanganui, the

tribal Parliament, since

its inception in 1995. She

was a tribally appointed

Director of TGH from 2009-

2012. She is also a Director

of Genesis Energy, Regional

Facilities Auckland Limited

and the NZ Centre for

Social Innovation.

In 2011 she applied for and was accepted on a

one year course run by the New Zealand

chapter of ‘Global Women in Leadership’. The

course is designed for women in either the

public or private sectors who are breaking into

senior management or governance roles. It

involves a programme of study and assignments,

supported by monthly day-long workshops and

ongoing mentoring.

For Ruku, the most significant benefit was

becoming more aware of her own leadership

capabilities, and developing more confidence to

use them. “I definitely felt I was able to make a

greater contribution to TGH as a result, especially

around strategy.”

“Being a tribally-appointed Director is all

about ensuring alignment between the tribe’s

objectives and TGH’s commercial ones. It

also involves going back to the tribal Board

(Te Arataura) and talking with them about the

challenges and opportunities facing TGH. What

you’re looking for is win-win outcomes,” she says.

Looking back over her time in tribal governance

roles, Ruku says that tribal members have

become very astute and are more involved.

“They have always been clear about what they

wanted, but now they want to see greater and

more tangible returns from both tribal and

commercial investments.”

She applauds this. “If iwi are doing well, so will

the rest of New Zealand.”

Te koohao o te ngira ki Te aWa

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paRTiNg COmmeNTS

Since this is my last Chairman’s Report for TGH

consequent on my resignation, I’d like to sign off with

two parting comments.

First, one of the objectives we set for TGH a decade

ago was that the community also benefit from our

investments.

However, an alternative option that could have been

pursued was to put the Waikato-Tainui settlement in a

managed fund, much like the kiwiSaver schemes of

today that readers will be familiar with.

Had that option been chosen, there might be few if

any good quality hotels in Hamilton today. The tribe

could’ve leased the land at Te Rapa for industrial

use: there would then be no Base retail centre, and

Hamiltonians would’ve spent much of their shopping

dollar elsewhere. Neighbouring cities would have

gone from strength to strength. There would be no

contemplation of a freight hub at Ruakura, with other

regions instead looking to capitalise on the opportunity.

Today, despite some short-term issues, the Waikato

can look forward to a prosperous future. Dairying has

always been seen as the area’s strength, but history

shows that it’s not sufficient on its own. The region’s

future is also inextricably bound up with Waikato-

Tainui and TGH, and vice-versa.

Second, it is my hope that iwi as a whole will at some

stage realise their common potential by investing

at least some of their assets in a single investment

vehicle. There is strength in numbers, and such

a venture could truly diversify risk and take on

OuTLOOk

For the next few years, the company’s results are likely

to be fairly similar to 2012.

Longer term growth in earnings is currently

dependent on obtaining planning approvals for

Ruakura and finalising a plan for the development.

Mike Pohio, Chief Executive, elaborates further on this

in his report.

the reGion’s future is Also inextricAbly bound up with wAiKAto-tAinui And tGh, And vice-versA. Ko te whAnAKe o teenei rohe e whiri KotAhi AnA Ki A wAiKAto-tAinui me tGh.

Te aWa, The Base

1 7

Tainui Group Holdings Annual Report 2012

large projects. Like all iwi investments, it would be

long term, and all New Zealanders would be the

beneficiaries, just as the Waikato and Auckland have

been from TGH’s investments. The country sorely

needs large local investors, as ongoing debates over

foreign ownership reveal.

If I look back on the ten years I have served as

Chairman of the Board, my overwhelming feeling is

one of huge admiration for the people I’ve worked

with – my fellow Directors, the management team, our

staff, business partners, customers and suppliers.

It is not possible here to name them all, but I’d like to

sincerely thank everyone with whom I have worked in

my capacity as TGH Chairman.

It is my hope that Waikato-Tainui continues to produce

directors capable not only of sitting on their own

commercial board but who can also at the same time

operate at the top levels of commercial governance in

New Zealand as Rukumoana Schaafhausen has done.

The quality of my fellow independent Directors and

advisors has always been high, and is even more

so today with the likes of Mike Allen and Matthew

Cockram, and now Sir Henry van der Heyden and

Joanna Perry.

The management team and staff, under Mike Pohio’s

leadership, are as good as any I have encountered in

my managerial and directorship careers.

All the necessary structures, policies, processes and

standards that are critical for commercial success for

TGH have been entrenched.

So the future for the company is surely a bright one,

and I wish everyone associated with it all the very best.

John Spencer, Chairman.

Te aWa, The Base

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The financial results for the year were very welcome,

and vindicate our decisions to continue investing

in new property assets in recent years, despite the

Global Financial Crisis (GFC). The GFC has in fact

been an advantage in some respects: construction

costs, for example, have been very competitive.

Our initial focus during the financial year was on

bedding in Te AWA, the new specialty retail mall at

The Base, and the new Novotel Auckland Airport

hotel, both of which were completed in the first half.

The result is that TGH is now in the position of having

better comfort around future cash flows.

We are constantly making strategic assessments of

what the best options are for each of the company’s

assets. We benchmark each of our properties against

others in the same asset class. This not only gives us

the criteria for investment decisions, but also allows

us to measure how we’re performing over time. The

result is that we have more certainty than ever before

about where our future opportunities lie.

So in the second half of the year, it was more of a

behind-the-scenes effort directed toward that end.

Planning for our proposed freight hub and inland port

at Ruakura took up a lot of our time. It involved an

intensive programme of work to prepare the project

for inclusion in the draft Hamilton City District Plan and

Waikato Regional Council’s Regional Policy Statement.

Both are up for renewal and therefore consultation this

calendar year.

The Ruakura project involves creating a master

plan for 500 hectares of land, with all land uses

fully envisioned and integrated, and all necessary

infrastructure identified to facilitate those land uses. It

also means fully comprehending what is involved in

creating an effective inland port and freight hub.

But above and beyond that, it involves developing a

real vision for what Ruakura could become, more than

just what it must become.

Also high on the agenda in 2012 was identifying future

priorities at The Base and finalising The Base master

plan, having secured resource consents for most of its

remaining stages.

2012 was very

much a year of

consolidation

for Tainui Group

Holdings.

From the ceO

there will be huGe opportunities for others to join us in the ruAKurA development, And thAt it will AttrAct considerAble externAl investment into the wAiKAto. ArAA Anoo nGAA wheinGA o nGeetehi KiA pueA A ruAKurA, KA tooiA mAi tAhi nGAA putunGA tAhuA o wAho Ki te riu o wAiKAto.

Mike Pohio, CEO

1 9

Tainui Group Holdings Annual Report 2012

Te aWa

Stage 3A opened in April, and Stages 3B and 4 opened

in August, featuring the new Hoyts cinema complex

and the worldwide premiere of Billy T: Te Movie.

A major challenge for us with Stage 3A and 3B of

Te AWA was securing tenants in a subdued retail

market. The February Christchurch earthquake and

Queensland floods also affected the process, with

some potential tenants’ decisions unavoidably delayed

because of these events.

TGH’s property team however made a huge effort,

and while Stages 3A and 3B were not 100% tenanted

on opening day, we did achieve this milestone shortly

thereafter.

Completion of Te AWA was the right strategic

decision for TGH, just as locating there was the right

one for the new mall’s tenants.

When we were planning Te AWA, we undertook

a careful study of who its customers would be: the

312,000 people in the Waikato region, of which 60%

were resident outside of Hamilton City. We also knew

there was leakage to comparable malls in Auckland

and Tauranga, because there was little in Hamilton to

compete with them. While we had large format retail

at The Base, specialty retail, especially fashion and

complementary stores, was the value proposition for

Te AWA.

That approach has been validated by customer

patronage. On Boxing Day 2010, for example, 23,000

people visited Te AWA. A year later, on Boxing Day

2011, 41,000 did so. And in mid-March 2012, a normal

trading Saturday, 20,000 came to the mall.

Apart from the numbers, Te AWA has undoubtably

broadened the range of customers coming to The

Base, and has reinforced our property diversification

strategy, this time within the retail space.

NOvOTeL auCkLaND aiRpORT hOTeL

The 263-bed, four and a half star Novotel Auckland

Airport was officially opened on Friday 27 May by

kiingi Tuheitia and the Prime Minister, John key, in a

dawn ceremony.

With just 100 days out from the start of the Rugby

World Cup, the hotel was able to capitalise on that

event, and since then has maintained consistently

good occupancy and rates.

It has certainly met our expectations, as well as

that of customers, who have provided very positive

feedback. The hotel is located 20 metres from the

international terminal, and so is well placed to offer

accommodation for international travellers arriving

late in the evening or departing early morning.

The hotel’s restaurant, conference and meeting

facilities are also being well utilised, given that the

area has been short of such amenities.

The $65 million project was developed by a joint

venture comprising ourselves, Auckland International

Airport and Accor, who operate the hotel.

Auckland Airport handles over 13 million passengers

annually, projected to grow to 24 million by 2025, with

more than 70% of all international visitors to New

Zealand arriving or departing from Auckland.

The hotel therefore meets all our criteria for a high

quality, long term investment.

Novotel auckland airport

Te aWa, The Base

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RuakuRaAs I mentioned earlier, we determined that

envisioning what Ruakura could truly become was

going to be the key to a really special and successful

development.

This has involved considering the scope of activity,

what technologies could be deployed there, and what

different models we could use. To this end, we built

on our 2011 visits to several US and Australian inland

ports by engaging expert advisors with extensive

international expertise.

It is the right sequencing and aggregation of linkages

between ourselves as landowner, ports, transport

operators and infrastructure providers, tenants and

their customers that is the key to Ruakura achieving

the potential it is capable of.

Everything will grow around the inland port and the

technology employed there. For export and import

customers, visibility of their goods and access to them

are the keys. So Ruakura will need both state-of-the-art

terminal management systems as well as the latest in

equipment to physically move goods on and off and

around the site. Total co-ordination will be required with

roading authorities, kiwirail and the logistics community.

What we are now working on is the role TGH could play

over time. We are clear that we will employ the same

approach used at The Base, where key partnerships

were established at various stages. This means

there will be huge opportunities for others to join us

in the Ruakura development, and that it will attract

considerable external investment into the Waikato.

We also know that it will have humble beginnings, and

will be a carefully staged development. If Ruakura

obtains all the necessary regulatory approvals, the

project will start with one or two initial anchor tenants.

We will establish all the necessary infrastructure

and access to enable them to locate and operate as

efficiently as possible.

The BaSe

For the remaining stages of development at The Base,

we secured all resource consents during the year except

for the hotel and one other large format retail site.

We also continued to develop the master plan for

those remaining stages, working out what would be

the next best step to take. This work has been made

easier by our purchase of the one hectare property on

the corner of Te kowhai and Te Rapa Roads, a parcel

of land within the area that the tribe did not own.

Given the ongoing positive customer response to The

Base, access, egress and parking were a big focus for

us in 2012.

We completed all underground parking under Te

AWA, extended the parking areas at The Base

entrance, and created a new staff parking area

(important given that over 1,500 people work there).

We created a new mid point access to The Base, which

opened in Easter 2012, and signalisation of the Base

Parade will take place this coming financial year.

Our commitment to resolving traffic issues with

the Hamilton City Council builds on significant

expenditure by TGH made in earlier years. The two

lanes that used to be State Highway One running past

The Base for example, were expanded to four lanes in

2007, three years ahead of schedule, courtesy of TGH.

While they enabled traffic to move more freely, they

have been well used.

In that respect, the new Te Rapa by-pass, which will

be complete by the end of 2012, will be a major

step forward. It will provide an alternative route for

traffic heading north from the western side of the city,

decongesting Te Rapa Road where it passes in front of

The Base.

We have determined that the next addition to The Base

will be an ‘auto precinct,’ providing a range of vehicle

services. These are likely to include a valet service, a

tyre service, muffler and brake workshops, WOF, and

so on. Customers coming to The Base or Te AWA can

shop, eat or go to the movies while their cars are being

attended to. The precinct will match the rest of The

Base for the highest standards of quality.

The precinct will be located next to Heathcotes.

Foundations will be laid by the end of 2012, and we

expect it to be open for business around the end of

the first quarter of 2013.

Te aWa, The Base

2 1

Tainui Group Holdings Annual Report 2012

mike pohio, Chief executive.

The yeaR aheaD

While we have seen the company benefit this year

from the work on Te AWA and the Novotel Auckland

Airport hotel, we are under no illusions that 2013 will

be challenging and will require a lot of dedicated

work to maintain current levels of performance.

Despite benefiting from fresh earnings for these

two recent projects, there will be no revenue uplifts

from any of our investment properties beyond them.

And while some of our longer term leases are in the

process of being renewed, we expect the outcomes

will reflect the prevailing market conditions.

All this means we’ll need to pay close attention to

improving the efficiency and effectiveness of our

management of existing assets, and to constantly

review our portfolio to identify and deal with any

poorly performing assets. We will continue to look

here and overseas for best practice, in particular to

keep tabs on changing trends, and look to apply these

to our existing and future developments.

In the year ahead our focus will be very much

on Ruakura, along with the auto precinct, traffic

infrastructure and forward planning at The Base. The

company is working on some smaller, short to medium

term developments, notably at Rotokauri (residential)

and Bryce St (commercial). It is also examining a

range of other opportunities that will enable further

diversification of its investment portfolio.

Having said all that, TGH will still take up opportunities

that come its way and which make strategic and

commercial sense.

ThaNkS

I’d like to especially thank the other members of the

management team, all of the staff and our graduates

for the speed and quality of their efforts in 2012.

From the point of view of the staff, I would also like to

place on record our sincere thanks to the outgoing

Directors for their support, especially John Spencer

and koro Wetere. While setting high performance

standards, the Board has then given my team the

freedom to act to achieve the targets we’ve been set.

This has created a team culture where people not only

take responsibility, but are encouraged to add their

own ideas and look for opportunities. Good results

inevitably follow.

So with Ruakura, our efforts in 2012 focused on

preparing for and working with local and regional

regulatory authorities to make sure we met all of their

requirements, and that Ruakura makes a significant

contribution to the Waikato economy

This has involved extensive investigations, looking

at all economic, environmental, social, cultural and

regional perspectives. In anticipation of this work, we

appointed a project manager for Ruakura early on in

the financial year.

The company also invested a large amount of time

in presenting and explaining the concept to a wide

variety of stakeholders in the region.

In late 2012 we worked with Hamilton City Council to

undertake a first, preliminary round of consultation

with nearby residents. As a result, changes were made

to the interchange solution at the southern end, more

detail has been added around staging road network

changes as the inland port and new expressway

develop, and better methods of dealing with noise and

amenity issues were identified.

The draft District Plan was due to be released publicly

in April 2012, and a second round of consultation,

with open days, was planned for May. Following

submissions, Hamilton City Council are scheduled

to consider the draft plan in September, with formal

notification in November. A draft new Regional Policy

Statement is also due out in 2012, with a target of

adoption around September.

It is our understanding that the NZTA Board will

determine whether to give approval for the ‘macro-

scope’ of the new expressway in mid 2012. This would

then allow NZTA to amend the designations, start to

acquire land and move to a more detailed design, with

the intention of a full funding application being made

for the Expressway around 2014/15.

Ruakura, hamilton

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pORTFOLiO maNagemeNT

CaSh FLOWS

Managing cash flows is crucial to TGH.

They are reported on and managed

weekly. The ability to do this successfully

has a cascading effect on the timing of

debt draw downs, and therefore interest

rate exposure. As a high proportion of

income is derived from property rental,

cash inflows are regular with very little

deviation. Cash outflows may spike

according to the various development

projects requiring funding, but otherwise

operating outflows also remain at

consistent levels.

Sustainability and quality of cash flows

are essential components of TGH’s

business. They must withstand market

fluctuations, and service not only

operating costs but also the dividend to

our Shareholder and debt requirements.

Through its tenancy profile, TGH is

provided with stable, long-term, high

quality tenants such as Genesis, Waikato

Institute of Technology, University of

Waikato, kiwi Income Property Trust

and Crown agencies. In 2011, these

tenants generated the bulk of investment

property cash inflow. In 2012, with the

completion of Te AWA, this reduced from

39% to 29%, meaning TGH’s rental cash

flows are now predominantly from retail

tenants. TGH’s increased exposure to the

retail sector prompts a more hands-on

approach to debt collection and tenant

relationship management. This will

become increasingly important as TGH

navigates through what is expected

to be a sluggish period for the New

Zealand retail sector.

A careful and considered approach is

applied to property development. Before

any property development is approved,

its feasibility is analysed to ensure that

the project’s cash flows meet internally

developed risk-adjusted hurdle rates.

The most significant development

undertaken in TGH’s history was the

construction of Te AWA at The Base. The

development was broken into multiple

stages, so TGH received rental revenue

as each stage was completed, allowing

debt to be serviced accordingly. Before

commencing each stage, a committed

leasing threshold also had to be met to

provide surety of cash inflows.

In July 2011, TGH sold its 4.5%

shareholding in NZX listed company,

Ryman Healthcare Limited. The

divestment of the Ryman shares allowed

TGH to pay down a significant portion

of the company’s debt, and benefit from

subsequent savings in interest costs.

eCONOmiC vaLue aDDeD aND

SeCTOR RepORTiNg

TGH’s market is as wide and varied as

the business TGH operates. However, the

nature of the core business does place

TGH in the investment property sector.

Largely based in Waikato, TGH owns

a significant footprint in the Hamilton

area where competitors are commercial

landlords, retail operators and residential

and commercial property developers.

TGH periodically compares its

performance to market standards to

assess returns on investments. The

balance sheet consists mostly of tangible

assets that are reported at market value,

and so an Economic Value Added (EVA)

analysis is suited to TGH’s business.

TGH has evolved its EVA reporting

to allow for the review of the sectors

for which it has significant investment

in. These are: investment property

(commercial, retail, government and

rural), development property, hotels,

agriculture and fishing.

For each sector, TGH has developed

risk adjusted hurdle rates using public

information to access its balance sheet

profile. These rates are used as a basis

to assess potential future investment in

these sectors, as well as benchmarks for

reviewing current or historic performance.

The nature of sector reporting allows

TGH to ‘drill down’ into individual assets

if required to assess performance and

therefore make decisions to either

dispose of or improve the asset.

TReaSuRy maNagemeNT

TGH has a similar challenge to

companies operating a

co-operative structure, in that it is

dependent on debt to fuel growth. TGH

has not issued capital to anyone other

than its Shareholder. This dependence

on debt, by necessity, requires TGH to

take a pragmatic approach in managing

liquidity and risk exposure by:

Utilising relationships with banks, •

business partners and advisors;

Building sound internal treasury •

competencies;

Employing technology to provide •

current market information; and

Developing and adhering to practical •

liquidity, debt, and hedging policies.

Management reports each month to

the Board on TGH’s compliance with

policies governing hedging profiles,

debt durations, and overall risk

exposure. Any compliance deviation is

reported, explained fully, and corrective

action taken as necessary.

DeBT DuRaTiON

TGH forecasts its debt monthly, on a

12 month rolling basis for operational

purposes, but a longer term view of

capital expenditure is taken to provide

future funding requirements.

In July 2011 TGH increased its core debt

facilities (excluding debt associated with

the Novotel Auckland Airport hotel) by

$50 million to $250 million in anticipation

of longer term projects. The company

also restructured its facilities, with a focus

on tenor (debt duration) and balancing

the associated pricing. The restructure

provided greater security around future

liquidity requirements and means

that TGH does not need to constantly

refinance its debt every year, which

usually comes at considerable cost.

With a commitment to finishing what it

started at The Base, TGH will continue

the development of the currently

undeveloped area of land adjacent to

Te AWA, and existing large format retail.

This, in addition to some comparatively

OPERATIONAL REVIEW

2 3

Tainui Group Holdings Annual Report 2012

minor capital expenditure at Ruakura

will see TGH’s core debt grow to around

$200 million by the financial year end

2013, and $235 million by 2014, subject

to growth in the value of total assets.

iNTeReST RaTe RiSk

Utilising both bank relationships and

technology, TGH monitors the interest

rate market on a daily basis. This is

particularly important in times of global

economic uncertainty, as this invariably

impacts on the swap rates that TGH is

able to achieve. Swaps are financial

instruments which are entered into

with banks to hedge interest rate risks.

Further detail on TGH’s interest rate risk

is provided in note 23.1 (b)(ii) of the

financial statements on page 76.

During the current financial year, TGH

restructured $42 million of its interest

rate swaps with Westpac. The rationale

was two-fold:

To take advantage of pricing and •

flatness across the yield curve to

achieve lower interest rate swap

levels; and,

To align TGH’s swap portfolio with •

policy limits to avert a breach of policy

that might otherwise have occurred

in November 2012.

COST eFFeCTiveNeSS

TGH constantly monitors overheads

to ensure that profitability margins

are not compromised. TGH provides

corporate services to the Shareholder

which avoids duplication of resources

and enhances the depth of specialist

functions.

The level of overheads recognises

TGH’s need to attract talented staff and

to engage specialist external consultants

and legal advisors as needed. The long

‘gestation period’ between concept

and completion of a project means that

overheads are often incurred ahead of

resultant steady-state revenue streams.

The staged opening of tenancies at Te

AWA has mitigated overhead costs to an

extent, providing revenue streams close

to completion of each tenancy.

maRgiN maNagemeNT

As TGH is predominately in the property

investment and development business it

places significant emphasis on achieving

commercially acceptable returns on

property leases, and adopts a selective

approach to property investment and

development projects to ensure the

risks TGH undertake are appropriately

compensated for.

Rent reviews are another opportunity

to review and negotiate terms with

existing tenants. Depending on the lease

agreement, rent reviews are based on a

number of standard mechanisms, such

as current market rental as assessed

by an independent valuer, inflation, and

an increase in tenant’s revenues. The

majority of TGH’s leases have clauses

bu

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iNTeReST COveR pOSiTiON (RaTiO)

0 0.5 1 1.5 2 2.5

March 2012 Covenant

Minimum Covenant 2.00

2.67

geaRiNg pOSiTiON

59% 60% 61% 62% 63% 64% 65% 66%

March 2012 Covenant

Minimum Covenant

Quasi Equity as a percentage of Total Tangible Assets

Maximum gearing is 30% of debt to total assets

60%

66%

which stop the rental from decreasing.

A feasibility study is undertaken where

a property development or investment

opportunity is presented to the company.

The study assesses what resources

are required for the development and

calculates the development margins and

rental returns. Property development

projects are assessed based on the

calculated returns and are dependent

on compensation for the resources

utilised and risk involved. As a project

is progressed, constant monitoring of

its feasibility is conducted, ensuring that

there are no cost over-runs. In 2012, all

projects were maintained within budget.

Covenant: Covenants are the financial measures which TGH must abide by under the terms of the bank debt facilities and only apply to the entities within the Group that have provided guarantees.

Interest cover ratio covenant: Interest cover ratio calculates the number of times the profit (before interest cost) exceeds interest costs. The ratio must be more than two times.

Gearing percentage covenant: The gearing percentage covenant is the equity as a percentage of the total tangible assets.

kEY

iNTeReST BeaRiNg LiaBiLiTy (BANk DEBT TGH)

0 0

50

100 15

150

200 30

2012

180

2011

187

2010

88

2009

75

2008

73

$m %

Ban

k D

ebt

Deb

t to

To

tal A

sse

ts

25

10

20

5

2 4

aCquiSiTiONS aND DiSpOSaLS

TGH continually reviews its property

portfolio to ensure that all its investments

are providing appropriate returns.

While a number of acquisition

opportunities were presented in 2012,

only two (adjacent to The Base) met

TGH’s investment criteria. Both these

properties were secured to strategically

enhance the land holdings at The Base,

for additional access, and control of the

state highway frontage. There were also

minimal property disposals throughout

the year, so the portfolio remains

relatively unchanged.

iNveSTmeNT aND maNagemeNT

71 rent reviews were completed during

the financial year which resulted in

additional revenue of $0.8 million,

providing an uplift of 5.4% over prior

rentals. Total occupancy for 2012

was 98% (2011: 97%) at year end.

Occupancy were maintained at high

levels throughout the year as industrial

and retail vacancies were filled.

The BaSe pROFiLe

The Base is one of only a few super

regional shopping centres in New

Zealand due to its scale of offer, high

presence of anchor tenants and that

it draws a significant proportion of its

patronage from other regions outside of

Hamilton

The Base is now the country’s largest

retail development comprising of

significant large format retail, food and

hospitality, a large DIY offer, an outlet

centre and a specialty retail shopping

mall including a cinema complex.

During the year a further 41 tenants

signed lease agreements and

commenced trading at The Base,

including 34 tenants in Te AWA with the

completion of stages 3 and 4, bringing

the total number of retailers within the

mall to 103. In addition to Te AWA there

are 77 large format tenants (including

outlet stores) bringing the total

tenancies at The Base to 180. A further

7 new tenants are planned to open by

Christmas 2012.

JORiS De BReS

‘quaLiTaTive STep FORWaRD’ eaRNS SpeCiaL aWaRD

In the 2011 Diversity Awards, the Human Rights Commission gave a special award to TGH. In making the award, the Commission recognised the design of The Base and in particular its new mall, Te AWA, which had been embedded with cultural reference points including whakatauki (proverbs), niho taniwha (tribal patterns), pou (carvings) and the Waikato River. It also noted that Te AWA was the first mall in New Zealand to establish bi-lingual signage throughout its public areas.

Only one special award per year is made.

Race Relations Commissioner Joris de Bres made an unaccompanied visit to Te AWA to see for himself what had been done.

“I was pretty impressed with the integration of Te Reo and Waikato-Tainuitanga into the look and feel of the complex, both inside and out. It’s the naturalness of the bilingual signage from the carpark right through to the utilities that’s very striking.”

De Bres says it all feels ‘deceptively normal’. “Whether you’re a local or a visitor, it’s immediately familiar and yet it’s unusual. That’s the sense you have.”

Combined with a similar approach in its hotels, de Bres feels TGH is breaking new ground.

“Athough there is now some bilingual signage in some supermarkets, I can’t think of another commercial operation with a general customer base like it, in terms of scale and overall integration of Te Reo into the building.”

“It’s a qualitative step forward for recognition of Maaori language and culture in both commerce and broader New Zealand. National recognition was warranted, and we hope it will encourage others to follow suit.”

Property asset value

($M)

Occupancy (%)

2012 2011 2012 2011

Retail 311 248 100 98

Rural 78 74 100 100

Public 64 61 95 98

Industrial 42 40 100 93

Office 34 35 94 98

Total 528 458 98 97

iNveSTmeNT pROpeRTy pORTFOLiO SummaRy

iNveSTmeNT pROpeRTieS

Comprising 78% (2011: 71%) of TGH’s

total assets, investment property has

had positive growth in value and cash

flow in a relatively flat market over the

past year. A high proportion of strong

tenants with good quality covenants

provide a significant contribution to

both rents revenue and long term

leases. Ground leases provide further

stability as tenants have a shared

interest in retaining their tenancies

and renewing beyond the initial lease

expiry date. Our property values in

the retail sector have been boosted

significantly by the capital investment

in the final stages of Te AWA, The Base.

The values of all other property sectors

have remained relatively static.

2012 2011

Net lettable area (sqm) 81,171 67,332

Number of tenancies 180 139

Occupancy 100% 98.1%

Car parks 2,860 2,017

pedestrian count 7.1m 5.5m

vehicle Count 3.6m 3.0m

key STaTiSTiCS – The BaSe

2 5

Tainui Group Holdings Annual Report 2012

A key strength of The Base is the

significant customer car parking,

roading layout and car-parking

management system. During the year,

a further 843 customer car parks

were constructed, bringing capacity

to over 2,860, additional access ways

were created, and the car park system

continued its roll out.

CBD DeveLOpmeNT

TGH’s head office has outgrown its

current premises located at 4 Bryce

Street, Hamilton. To accommodate

the necessary expansion, a re-

development of the premises at 6 Bryce

Street, Hamilton has commenced. The

expanded premises will house TGH

and also include Joe’s Garage Cafe,

a new cafe operator to Hamilton. This

re-development, along with TGH’s

neighbouring buildings at 2 and 4

Bryce Street, will form a boutique office

precinct which will help enhance the

CBD and reinforce TGH’s commitment to

the central city.

TGH is also very pleased that it has

secured Palate restaurant as a tenant in

refurbished premises in its Alma Street

building overlooking the Waikato River.

Palate continues to be one of the regions

premier restaurants, and the shift to

this location should only enhance that

reputation.

ReSiDeNTiaL DeveLOpmeNT

The Callum Brae Tainui joint venture

development at Huntington is nearing

completion with only 24 of its 655

sections remaining for sale. Planning

is underway for the residential

development of 40 hectares located at

Rotokauri, less than a kilometre west of

The Base, which will ensure that TGH

remains in the residential development

sector. Added to Rotokauri and located

an easy distance from both Hamilton and

Auckland, 31 sections are available for

sale in a recently developed property at

Hartis Avenue, Huntly.

0

3

6

9

12

15

WeighTeD aveRage LeaSe TeRm (TGH)years

Rur

al

Offi

ce

Re

tail

Port

foli

o

Ind

ustr

ial

Pub

lic

2.7

7.1 6.78.3 8.5

14.3

iNveSTmeNT pROpeRTy pORTFOLiO vaLue (TGH)

$m

0

100

200

300

400

500

600

20122011201020092008

Retail Rural Public OfficeIndustrial

aWaRDS aND NOmiNaTiONS

aWaRDS/aCCOLaDeS

property Council New Zealand – Waikato Branch The Judges choice award for overall outstanding contribution to the Waikato Property Industry.

New Zealand Concrete Society Commendation Landscape award for Te AWA.

human Rights Commission Special award for cultural references and bi-lingual signage at The Base and in particular, Te AWA.

marae investigates 2011 Maori of the year – business section.

auckland architecture awards Commercial architecture and interior award for Novotel Auckland Airport Hotel.

New Zealand architecture award Commercial Architecture for Novotel Auckland Airport Hotel.

2012 NZ property Council Awards Category – Retail Property Award for Te AWA.

2012 NZ property Council awards Category – Tourism and Leisure Property Award for Novotel Auckland Airport hotel.

NOmiNaTiONS

New Zealand institute of Chartered accountants 2011 Best Annual Report by a Corporate Organisation (Finalist).

2011 NZ Timber awards Commercial Architectural Excellence Category for Te AWA.

2011 NZ Timber awards Interior Fitout Category for Te AWA.

2011 NZ Timber awards Clever Wood Solution Category for Te AWA.

2012 international Council of Shopping Centers Asia Pacific Shopping Center Awards, Category – New Developments,

Category – Expansions, Te AWA.

bu

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2 6

agRiCuLTuRe

FaRmS

TGH owns one drystock station and

two dairy farms. Today the three farms

are valued at approximately $22 million

(including Fonterra shares).

The drystock farm, also known as

Hangawera Station, is located near

Morrinsville. It runs 2,000 ewes, 200

cows and approximately 300 trading

cattle. These stock numbers include

approximately 150 bulls that are sold

iNveSTmeNTS

hOTeLS

TGH’s investment in hotels totalled $75

million as at March 2012, a $9 million

increase on 2011 due to the completion

of the Novotel Auckland Airport hotel,

and its existing shareholder in Hamilton

Riverview Hotel (HRH).

TGH maintains a controlling interest

of 70% of the Tainui Auckland Airport

Hotel Limited (TAAH), whilst Auckland

International Airport and Accor own 20%

and 10% respectively. The investment

in TAAH is reported at cost, of $61

million, which largely represents the

total development costs for the hotel.

Construction savings were achieved

due to rigorous negotiation of supply

contracts. The hotel’s occupancy and

room rates have exceeded initial

expectations in its first 10 months of

operations since opening in May 2011.

TGH’s investment in HRH was one of

the company’s first major financial

investments in 1998. TGH owns 41%

of HRH whilst Hamilton City Council

(HCC) and Accor own 41% and 18%

respectively. HRH holds total assets of

$46 million. HRH performed well in

comparison to last year’s occupancy

rates and revenue despite room

rates being slightly lower than 2011.

Performance was affected due to the

final stage of room refurbishment

undertaken at the Novotel Tainui which

was completed in September 2011.

equiTieS

TGH invested in Ryman Healthcare

following the signing of a strategic co-

investment agreement with Ngai Tahu

Holdings Group in 2008. In July 2011,

TGH divested its entire shareholding in

Ryman. This decision was made as part

of a review of other investments with the

outcome to retire debt. A capital gain of

$21 million and $5 million in dividends

were earned on the original purchase of

Ryman shares.

FiShiNg

TGH’s fishing interests total $33 million,

and comprise commercial quota and

other assets allocated to Waikato-Tainui

as a result of the Maaori commercial

fisheries settlement with the Crown.

Under the Maori Fisheries Act 2004,

assets from the settlement could only be

transferred to those entities that met the

prescribed criteria as a Mandated Iwi

Organisation (MIO), and which would be

managed by an approved Asset Holding

Company (AHC).

The MIO for Waikato-Tainui is Waikato-

Tainui Te kauhanganui Incorporated, and

TGH is an AHC.

TGH’s quota investment of $20 million

provides a return of 7.3%. Snapper and

crayfish continue to provide the highest

value of quota held, whilst the volume of

hoki provides a significant contribution

to the total quota held.

TGH has an alliance with AHC’s of

Ngaati Raukawa and Ngaati Maniapoto

to lease out the aggregated quota held

by the three iwi, having ceased to run

an active fisheries operation together in

2008.

WTF holds 5.48% of the income shares

in Aotearoa Fisheries Limited, an iwi

owned company which provided a

dividend to WTF of $0.5 million in

December 2011. Separate financial

statements are presented for WTF from

page 82 to 87.

250

260

270

280

290

300

310

320

330

TOTaL DaiRy pRODuCTiON (kILOGRAMS OF MILk SOLIDS)

2012

325

2011

284

2010

286

2009

266

2008

257

mS/kg in thousands

FOReSTRy

As a long-term investment in the TGH

portfolio, a total of 795 hectares is

currently planted in trees with a further

1,074 hectares leased out. The trees are

a mix of Radiata Pine and Californian

Redwood. The latter is well placed for the

New Zealand Emissions Trading Scheme.

eFFeCTive FaRm aRea BY HECTARES

650

109

Tainui Road (Dairy)

250

Hangawera (Drystock)

Hukanui (Dairy)

FOReST BY HECTARES

374

151

Whatawhata (Pine) planted 2001-2002

270Kawhia (Pine) planted 1996-1997

Waipuna (Redwood) planted 2005-2007

to the dairy market each year. TGH

employs two full-time farm staff and

is an active manager of this farm. The

two dairy farms are located on Bankier

Road, Gordonton and Tainui Road,

north of Morrinsville. Both are run on a

50/50 sharemilker basis with the farms

collectively producing 320,000 kgs of milk

solids from approximately 1,000 cows.

2 7

Tainui Group Holdings Annual Report 2012

Rental income

Hotel income

Other income

Quota leasing income

Dividends from listed investments

Sale of sections

ReveNue

2012 (outer circle): $55.3 million

2011 (inner circle): $34.7 million

71%

26%

10%

5%

9%5%

7%

5%

2%3%

57%

expeNDiTuRe

2012 (outer circle): $22.1 million

2011 (inner circle): $12.3 million

Direct costs from investment properties

Employee costs

Cost of sales

Other expenses

Consultancy fees

Depreciation and amortisation expenses

30%

26%17%

13%

4%

10%

34%

3%

8%

12%

12%

31%

NeT OpeRaTiNg pROFiT mOvemeNT

The net operating profit movement

graph shows the change between 2011

and 2012. Novotel Auckland Airport

hotel transactions and increased

rental income from Te AWA resulted

in increases in both total revenue

and operating expenses from 2011.

Finance costs are now recognised

in the operating results since major

capital projects are now completed.

The transactions from completed

developments are now flowing through,

improving the operating profit.

ReveNue

Income from the Novotel Auckland

Airport hotel is evident in 2012,

representing 26% of the total revenue.

Rental income from Te AWA is now

being received for a full year on stages

1 and 2 tenancies, and a partial year

on stages 3 and 4 tenancies. Fewer

residential section sales were realised

in 2012 as market conditions remained

flat and the stock on hand diminished.

With fishing, the quota market has seen a

decline in catch capacity and an increase

in the total allowable catch for some

key species. Combined, these have

reduced the need for major companies

to purchase third party quota and, as a

result, quota income has dipped in 2012.

Other income includes dairy revenue

and higher livestock values.

expeNDiTuRe

Expenditure has been influenced

by costs associated with the Novotel

Auckland Airport hotel and Te AWA.

Movement between 2011 and 2012

in employee costs, costs of sales and

depreciation are a factor of the Novotel

Auckland Airport hotel now being

included in 2012.

TOp TeN SuppLieRS BY SPEND IN 2012

Naylor Love Construction Limited Construction Services

Hawkins Construction Limited Construction Services

Sam Pemberton Civil Limited Construction Services

Hamilton City Council Local Government Services

Greenstone Group Holdings Limited Project Management Services

Ignite Architects Limited Architectual Services

ISS Facility Services Limited Cleaning Services

Schick Construction & Cartage Limited Construction Services

Auckland City Council Local Government Services

Boffa Miskell Consultancy Services

FINANCIAL OVERVIEW

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5

10

15

20

25

30

35

40

NeT OpeRaTiNg pROFiT mOvemeNT$m

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2 8

COmmuNiTyTGH supports many community

initiatives. In May 2011, TGH supported

a community initiative called the ‘At

Heart Foundation’ for congenital heart

defects in children. During surgery, a

child’s chest cavity is cooled down in

an icy slush to slow their heart rate.

To replicate this process, the ‘At Heart

Foundation’, in conjunction with The

Base, held an event on site where teams

could be sponsored to jump in an icy

cold pool for five minutes and then

warm up in a spa bath afterwards. As a

result, $10,000 was raised on the day for

the 12 kiwi children born every week

with a heart defect.

‘Shave for a Cure’ is Leukaemia and

Blood Cancer New Zealand’s biggest

fundraising event helping the estimated

six kiwis who are diagnosed with a

blood cancer every day. The Base hosted

the ‘Shave for a Cure’ event in March

2012 where individuals, businesses and

the community can seek sponsorship for

shaving their head. The event was well

support by the community, including

several members of the Chiefs Rugby

Team and All Blacks, pictured below,

raising $2,000 for the cause.

NeW ZeaLaND emiSSiONS TRaDiNg SCheme (NZeTS)The NZETS is a complex scheme

focused on carbon management and

administration. TGH is affected due to

its fisheries, forestry, and agriculture

related interests. We are fortunate

to have a forestry portfolio which

strategically positions TGH to engage

in the carbon credit market and aim

towards a carbon neutral company. TGH

holds 4,191 units for the quota held in

its fisheries portfolio and expects to

receive units for the forestry portfolio.

CuLTuReWaikato-Tainuitanga is a fundamental

aspect of TGH’s development and

operations. We seek to ensure tikanga

is followed for all projects – including

appropriate karakia (spiritual protocols)

for construction sites.

Waikato-Tainui design features in our

developments and business. The Novotel

Auckland Airport, Te AWA and The

Base all embed Waikato-Tainui cultural

imagery, reinforcing our ownership

and identity, as well as creating unique

visitor experiences. The construction of

the new TGH offices at Bryce Street in

Hamilton will also be embedded with

Waikato-Tainui design features.

Staff are also made aware of the cultural

influences within the organisation

through the induction process and other

measures, such as the celebration of

Maaori Language Week.

SOCiaL DeveLOpmeNTOur business activities contribute to

positive growth for the greater Waikato

region and New Zealand economy from

jobs created by our projects through to

Shareholder distributions.

The dividend we pay each year

helps the Shareholder to meet tribal

administrative costs and to fund

distributions to marae, education, health

and well-being initiatives, and social and

cultural developments.

SUSTAINABILITy

The Novotel Auckland Airport supports

the Cure kids appeal and up until March

2012 raised $9,300 by hosting a bingo

night, wine and cheese evening, bike-a-

thon and Red Nose Day.

iNTeR-iWi exChaNgeSIwi represent a sizable economic force

in New Zealand. During the year TGH

hosted representatives from Te Arawa,

Ngai Tahu and (internationally) the

Southern Chiefs Organisation from

Manitoba, Canada. In addition, TGH

and Ngai Tahu Holdings Corporation

representatives have attended each

other’s strategic planning sessions.

eNviRONmeNTResponsible, sustainable development

that makes sense and protects the

environment is how TGH operates.

The ethylene tetra fluoro ethylene

(ETFE) roof at Te AWA is an illustration

of sustainable construction. Made

from 100% recyclable materials,

the product is self-cleaning and has

insulating properties. It is light-weight,

and requires minimal energy for

transportation and installation. ETFE also

allows natural light penetration, requiring

little need to illuminate the common

areas of Te AWA with additional lighting.

A car park management system (Meter

Eye) has been installed in the basement

car park at Te AWA and at the large

format retail area at The Base. Shoppers

can easily view where the vacant car

parks are located, saving both energy

and vehicle running time.

Novotel Auckland Airport has installed

triple glazing not only to eliminate

airport noise, but also to provide added

insulation. The hotel is also committed to

participating in the EarthCheck standard

which is the leading benchmarking and

certification programme for the tourism

and hospitality industry. It provides a

framework for environmental and social

performance through independent third

party verification.

Master planning for the Ruakura

development incorporates greenfield

design. Stormwater is proposed to be

processed on site, thereby minimising

discharge into the public stormwater

systems which flow into the Waikato

River. This is a deliberate and essential

design feature, and fits well with the

Shareholder’s aspiration to restore and

protect the health and well-being of the

Waikato River.

TGH promotes recycling throughout

all business operations with weekly

paper recycling at its premises. This

annual report has been printed on

environmentally friendly paper which

has been sourced from legally harvested

forests, and has been printed with

environmentally friendly ink.

bu

sin

es

s r

ev

iew

2 9

Tainui Group Holdings Annual Report 2012

The opening of the Novotel Auckland

Airport hotel early in the financial year

and the completion of Te AWA with

stages three and four opening during

the year, were significant contributors to

TGH’s growth in 2012.

TGH’s core focus is growing its asset base

to allow long-term sustainable returns for

its Shareholder. After an unprecedented

capital expenditure bill of $114 million in

2011, being the highest in TGH’s history,

we are now starting to see the step-

change in benefits flowing from these

two projects in the form of increased

revenue and operating cash flows.

The Novotel Auckland Airport hotel

contributed 26% of TGH’s total revenue

in 10 full months of operations, a result of

strong occupancy over a period which

included the Rugby World Cup 2011.

The hotel employs a total of 137 full and

part time staff.

The Base has created a tremendous boost

to the local economy with construction

activity and the creation of 1,528 (2011:

1,363) full and part time jobs across the

centre. In July 2011, resource consents

for the development of the remaining

11 hectares as well as additional retail

on level one of Te AWA were approved.

Additional development of the centre

will further enhance Hamilton City

employment and activity. The balance

of land at The Base is likely to include

an automotive precinct, health centre, a

hotel facility, commercial office space

and, to a lesser extent, further retail.

Future residential development is

proposed for a 40 hectare rural site

located in Rotokauri - less than a

kilometre west of The Base. This sub-

division will continue recent residential

activity as the Callum Brae Tainui joint

venture residential section development

at Huntington nears completion. The

Rotokauri residential development will

also supplement the economic growth

generated from The Base.

The growth trajectory for TGH will

continue over the next few years with

the development of the remaining land

at The Base, and the residential section

development at Rotokauri. Together,

these projects will provide the platform

for the Ruakura development.

Apart from the major activities at

The Base, the development of the

property located on Bryce Street in

Hamilton’s central business district will

accommodate the new head office for

TGH - now necessary to replace the

current smaller premises – along with

additional retail.

Assets and earnings growth have been,

and will continue to be, funded via cash

flow and bank lending facilities. One

key challenge for maintaining business

growth will be access to long term

funding that matches the investment

horizons of TGH. Meeting this challenge

is part of the wider strategic planning

regularly undertaken by the Senior

Management Team and Directors.

Finistere specialises in food, energy and

health sector investments. At any one time

it will have investments in 7-15 companies,

with up to US$5 million in each.

Born in Ngaaruawaahia, Arama has been

involved in whaanau land trusts and

farming for many years. After a double

degree at Victoria University and a

spell in trade promotion and investment

banking, he became the Chairman of

Parininihi ki Waitotara Incorporation’s

farming business in Taranaki. In 2001

he made his way to the US as Regional

Director, North America, for New

Zealand Trade & Enterprise, based in

LA. In 2005, he was approached by one

of the founders of Finistere to join the

company. For Arama it was a chance

to go back to private sector, to work

directly for a firm and to play a role in

helping grow businesses.

His background is a strong asset. “If

you’re looking to apply technology to

agriculture, you need to understand how

it might work in practice, and know how

farmers think.”

He also says that because New Zealand

needs to export to survive, its people

tend to have an international perspective.

“That’s an advantage for me. The

US tends to be quite inward looking,

because it’s such an enormous market.

On the other hand, the US is very open to

receiving the best the world has to offer.”

However he says not a day goes by

when he doesn’t think of home. “It’s

good to see the Raupatu Settlement

kicking in, and that the tribe has

been able to develop its support for

education. The best investment you can

make is in your human capital.”

GROWTH

aRama kukuTai

One of the social investments Waikato-

Tainui makes with its annual dividend

from TGH is tertiary education grants.

Approximately 700 were given in 2011

and 800 in 2010 (the number varies

from year to year depending on what

grants are given out for other charitable

purposes, and the numbers who apply).

A recipient from earlier years is Arama

kukutai, Managing Director and a partner

of Finistere Ventures, a venture capital

firm, based in San Diego California.

The Base with Rotokauri (in maize)

3 0

Owners’ relationships create positive workplaceMany people will be familiar with Novotel, Ibis,

Pullman and Sofitel hotels. Fewer will know about

the company that owns these brands, the Accor

Group. It operates 4,400 hotels in 92 countries, and

employs some 180,000 staff. In most cases Accor has

a management contract or has franchised the brand,

and the hotels themselves are owned by local or

international investors.

Accor’s association with TGH started with the Novotel

Tainui and Ibis Tainui in Hamilton, and this year

the relationship expanded to include the Novotel

Auckland Airport hotel, built in conjunction with

Auckland International Airport Limited.

Paul Richardson, Accor’s Vice-President, New

Zealand and Fiji, was an integral part of the team that

developed the Novotel Auckland Airport.

“As a hotelier it was a great project to be involved

in. The whole process with TGH and the Airport

was managed extraordinarily professionally, and

the accolades we’ve received from just about every

quarter have been very, very satisfying.”

The hotel has won both Auckland and national

architectural awards and is a contestant in the annual

Property Council of New Zealand awards.

“What made it work is that all three partners had the

making New Zealand proudAuckland International Airport CEO Simon Moutter

says the company already had the idea of an airport

hotel on its books before he joined in 2008.

“We’re a hub airport, so there was plenty of demand

for short-stay accommodation. We’ve got main centre

traffic, and trans-Tasman flights that depart early and

arrive late, so same day connections aren’t always

same goals and aspirations,” he says. “We all worked

together to produce a product that would create a

stunning first and last impression of New Zealand, and

be an economic proposition as well.

“Many hotels are not built that way. A lot start off with

dreams of grandeur and want to build an ode to

that. Then half-way through the money starts to get

tight, shortcuts are taken and the original goals not

achieved.”

“What we’ve managed to do here is deliver a four and

a half star hotel at a commercially viable price.”

“For me professionally it was inspiring and very

satisfying to come up with the end product that we did.”

While involved from the start on the location, design

and layout of the hotel, the Accor team also had the

job of staffing the hotel.

“We were particularly looking for interest from south

Auckland and Tainui territory, and we opened with

about 30-40% of staff from those areas. We also

worked with the Ministry of Social Development and

their Job Start programme, and about 20-30 people

came through that.”

Today, between 120-150 staff work at the hotel,

depending on occupancy and use of the meeting

facilities.

“So yes, we’re getting a return on our investment, but

we’ve achieved other goals as well. We now have one

of the best international gateway hotels in the world and

have created employment in South Auckland.”

Since opening nearly a year ago, there have been

some pleasant surprises, including a large number

of Aucklanders using the hotel, as well as local

businesses using the meeting facilities.

Richardson says that the very positive relationship

the three partners in the hotel have spills through and

creates a positive environment in the hotel.

“The feedback from staff and guests has been

fantastic. If you go into the hotel there’s nothing

negative, it’s all positive. It shows that the culture of a

place can be impacted by the owners’ relationships. I

can’t emphasise that enough.”

paul Richardson, accor’s vice-president, New Zealand and Fiji

Creating effective partnerships has been an invaluable component of TGH’s business strategy. Five organisations whom the company currently works with are profiled here.

PARTNERSHIPS

3 1

Tainui Group Holdings Annual Report 2012

experienced partnership delivers results The Huntington subdivision in Hamilton is nearly

complete, with 630 of the 655 sections sold.

Developed by a 50/50 joint venture (JV) between

TGH and Callum Brae Limited, it’s been an important

source of revenue for TGH, especially in its early years.

Malcolm MacDonald and David Lugton have been the

driving force behind Callum Brae Tainui.

Malcolm grew up in a farming family, trained as

a quantity surveyor, and has been farming in a

significant way since that time. At the time that

two Macdonald farms came into the city, the family

became directly involved in residential section

possible. There was also demand for a venue for short

1-2 day business sessions.”

When he became CEO, he formed a new

management team with a very commercial focus, and

the project was pushed up the priority list.

TGH recommended hotel operator Accor as a partner

on the back of their pre-existing relationship in

Hamilton, and TGH led the development.

“TGH were good at driving to the right outcome. We

saw a very adept team at work,” says Moutter. “They

have a very commercial structure and leadership

team, and have proven to be good co-investors.”

“They were on the same page as us in wanting an

efficient and effective hotel. At the same time we all

shared a strong commitment to representing New

Zealand and Waikato-Tainuitanga well in the project.”

Moutter says the airport company is thrilled with the

end result.

“The three partners have definitely created a beautiful

building. The fit-out is of high quality and there is a lot

of New Zealand in it. We all wanted a quality outcome

that New Zealanders would be proud of.”

development. David trained as a valuer before joining

the well-known family real estate business, where he is

now the Managing Director.

Since 1995, they have undertaken eight residential

developments. Malcolm handles the planning,

construction and contractor management. David and

his team of specialist section salespeople handle the

marketing side.

Huntington has been one of the city’s most successful

subdivisions, having outsold its competitors most

years since sales started in 2001, averaging 60

sections per annum.

In part this was down to its desirable location, with

gully aspects. However, a key ingredient was also

stringent building covenants applied to each section,

which were carefully monitored. These obligated

section owners to build quality, well-designed homes,

with good fencing. Another was ensuring a balance

of supply and demand, so the number of sections for

sale at any one time was managed.

CaReFuL TimiNg

While sales fell following the 2008 downturn,

Huntington did so by less than other subdivisions. The

JV also put in infrastructure for 40 sections at the time,

so it was six months ahead of the market when sales

picked up again.

Careful risk management also played its part.

“We’ve never over-capitalised ourselves,” says Malcolm.

“We could’ve done 15 subdivisions over the years

instead of eight, but have always lived within our means.”

Through Huntington, the pair say they and TGH have

developed mutual trust and respect, and now have a

valuable relationship.

“It’s like a marriage. You go through good and bad

times together, and come out all the stronger for it.”

auckland international airport CeO Simon moutter

malcolm macDonald and David Lugton

3 2

Forward thinking the key to managing growthGrowth is a huge issue in the upper North Island. Just

take these three projections:

The Waikato is already our fourth most populous •

region. Along with Auckland and the Bay of

Plenty, it’s growing at a faster rate than the rest of

the country. Only 20 years from now, the ‘golden

triangle’ will contain over half the country’s total

population.

Today, the three regions generate 45% of our GDP. •

In 15 years’ time that will be over 50%.

The rail link between Hamilton and Tauranga •

carries more freight per kilometre than anywhere

else in New Zealand. Freight generated from the

Waikato will double in volume in 20 years, creating

huge future pressure on rail and trucking services.

In an effort to grapple with these challenges, all the

region’s Councils, Waikato-Tainui and the New Zealand

Transport Agency (NZTA) drafted a plan called ‘Future

Proof.’ It acts as a broad blueprint for development,

providing guidance for each Council in their own area.

Launched in 2009, Future Proof was timely given the

reviews of the Waikato Regional Plan and Hamilton

City’s District Plan, both underway this year.

SCOpe WiDeNeD

ken Tremaine is a consultant to Future Proof. He

has many years of experience in this kind of work,

including the SmartGrowth project for the Bay of

Plenty. He says Future Proof has now widened its

scope to include the whole of the upper North Island,

given the huge inter-dependencies between each of

the three regions.

“The economies of Waikato and Auckland are

inextricably tied up with things like minerals, water

and freight. As Auckland grows, there are lots of

challenges. The Waikato needs to be seen as a

corridor of transport and land use between Auckland

and Hamilton. What goes where, and when, is actually

quite important. We have to get our heads around

what life will be like in 30 years.”

And growth isn’t the only issue, according to Tremaine.

“It costs as much to move a container from New

Plymouth to Auckland as it does to ship it to China.

With the rise of middle class markets in Asia, we

need to get exports to port very efficiently, or we’ll

lose international competiveness. So there’s a real

imperative to address that.”

TimeLy iNFRaSTRuCTuRe ChaLLeNge

Tremaine says there are challenges to overcome.

“As a country, we struggle to get timely infrastructure

in place. Unlike say Australia with its state

governments, central government here has preferred

to leave it to regions and the market to sort out.”

“Having said that, since the Government via NZTA

is kicking in over $2 billion in transport projects for

the Waikato, they naturally want some certainty from

Councils in the area about the long-term plan.

Tremaine sees TGH’s proposed inland port and freight

hub at Ruakura as a vitally important step in tackling

both the growth and cost issues.

“Opportunities like Ruakura only come along once

in every 50 years, where you’ve got a market need,

a willing developer and huge economic benefits that

can be generated from putting a high-tech intermodal

freight terminal there.”

“You’ve also got a large chunk of land in the hands of

one organisation, which is rare. It’s normally hard to

get landowners to co-operate, and to think long-term,

and TGH is intergenerational in its thinking. Their

CEO was Container Terminal Manager for the Port of

Tauranga and a senior manager for NZ Dairy Group,

so there’s a heap of practical skill there.”

impORTaNT DeCiSiONS immiNeNT

Tremaine says the key tasks with Ruakura are to get

the regulatory framework right, identify the funding,

get alignment between land uses and make it an

economic proposition to develop. The Regional Plan is

the most critical component of this he says.

“Decisions like Ruakura are very important. We

will be competing with others, if we aren’t already.

Singapore is already the northern Asia-Pacific hub,

and Brisbane is a contender for the southern one

alongside Tauranga.

“Not only that, but unless we get good inland facilities

and critical mass in distribution, then the southern part

of Auckland will end up pressuring the food bowls of

the city. You only have to look at the Hutt Valley and

large parts of Christchurch to see what happens when

you put motorways over food bowls.”

ken Tremaine – consultant to Future proof.

3 3

Tainui Group Holdings Annual Report 2012

Freight solutions vital to NZ economyWhen people think of the New Zealand Transport

Agency (NZTA), they probably associate it with

managing state highways, providing public transport

subsidies, and along with the Police, helping reduce

the road toll.

But it’s also responsible for long-term planning of –

and investment in – our major road networks. That has

implications for TGH’s proposed Ruakura development.

The stakes are high. NZTA spends $8.7 billion every

three years, at a rate of about $50 million a week.

In the last three years it has spent $1.6 billion in the

Waikato and Bay of Plenty.

Near the epicentre of all this is Harry Wilson. He’s

NZTA’s Regional Director for the Waikato and Bay of

Plenty. He also has a national responsibility around

freight efficiency.

“What we want to do is make sensible investment

decisions. That means we need to understand the

whole long-range land use story in the upper North

Island. It’s not just about Future Proof, though that does

feed into our thinking,” he says.

“We have to be careful we don’t make the wrong

investment choices. Take for example the high cost of

trucking goods over the kaimai ranges. One option

is to put a tunnel through, but that might cost up to

$2 billion. Another is to do what kiwirail have done.

By adding just one turning loop, they’ve been able to

significantly lift the carrying capacity of the East Coast

rail line, and at a cost of only $9 million.”

Wilson says that from a freight perspective, NZTA has

to be agnostic about mode, and is equally interested

in shipping, ports and rail.

“The holy grail of freight efficiency is full trucks, full

trains and full ships.”

NeeD

New Zealand, especially the upper North Island, is

currently some way off that.

“The export equation we have is low value, high

volume goods. The import equation is consumption

in Auckland. Between those two, there’s a whole story

to write. The emergence of kiwiRail as a long-haul

operator will change things if it works out. If kiwiRail

can get your product up and down the main trunk,

100% of the time, on time, you’ll get a shift from long-

haul road to long-haul rail.”

“And having kiwiRail as a reliable partner enables

long-haul transport operators to move from long-haul

harry Wilson – NZTa Regional Director, Waikato and Bay of plenty.

trucks, and start to run bespoke configurations. That will

start to suit inland port hubbing.”

In this area, the key aim for NZTA is efficiency.

“We’re very clear that our priority is reducing the freight

cost of getting goods to market. We’re not trying to do

all things for all people. We’re trying to support the New

Zealand economy.”

CO-ORDiNaTiON viTaL

But while NZTA is a big investor, it’s not going to dictate

what happens.

“We’re providing the road, but it’s the market which

determines who drives over it. We’re not trying to tell the

private sector what it can or cannot do. We’re trying to

work out where we can add value to that conversation. My

role is to make sure all the stakeholders in the region are

connected, and that everyone has good information.”

One result is the multi-region ‘Upper North Island

Strategic Alliance’ which has made transport one of its

top priorities. “The playing field has become a stadium.

Instead of just having regional interests, everyone is

starting to see the power to grow the New Zealand

economy by joining together.”

RuakuRa

Wilson explains that these changes have had implications

for Ruakura, as it has had to shift into a much wider

political and planning environment. He says however

that while the planning decisions have yet to be made,

Ruakura’s strategic advantage is the road and rail

combination and location between the Ports of Auckland

and Hamilton.

“Of course the NZTA can’t pick winners. The market

will dictate where inland ports and hubs are located but

Hamilton is a really good location strategically, given the

shortage of business land in Auckland, capacity issues,

congestion and so on. The critical thing is to stop thinking

about Auckland’s interest to grow Auckland’s economy,

but about the North Island’s interest to grow the New

Zealand economy.”

3 4

Chris Joblin

Chris was appointed Chief

Financial Officer in 2009.

Prior to joining TGH Chris

held a number of senior

financial positions in both

New Zealand and the United

kingdom. Chris is a member

of the New Zealand Institute

of Chartered Accountants and

INFINZ. Chris’s interests are

in Treasury Management, and

at TGH he is responsible for

finance, treasury management,

financial information systems

and audit.

His achievements in 2012

included extending TGH‘s

debt facility from $200

million to $250 million and

refining processes around

budget, forecast and financial

modelling.

Married to Colleen, Chris has

two children.

mike pohio

Mike was appointed Chief

Executive Officer in 2006.

Prior to joining TGH, Mike

held a number of senior

management positions in

companies including the Port

of Tauranga, Fonterra, New

Zealand Dairy Group and

Elders Pastoral. Mike gained

an MBA from IMD, Switzerland

in 1999 and is a member of

both the New Zealand Institute

of Chartered Accountants

and Institute of Directors. He

is a director of Transpower

and NZL Group. He is also

Chairman of BNZ Regional

Partners, Waikato; a member

of The New Zealand Initiative

and the Property Council of

New Zealand. Mike has two

adult sons and is married

to karen.

Nathan york

Nathan was appointed General

Manager of Property in 2003.

Prior to joining TGH, Nathan

was a senior analyst for a

private investment company in

Auckland. He has a Bachelor

of Management Studies

degree and an MBA from the

University of Waikato. Nathan

is an executive member of

the Waikato Property Council

and also a trustee and advisor

for a number of Maaori land

incorporations and trusts.

Nathan oversees all property

investment and development

operations for TGH. In

the last year the property

business units achieved solid

increases to portfolio returns,

the completion of Te AWA

mall at The Base, the Novotel

Auckland Airport hotel,

substantial progress on the

statutory planning for the

Ruakura project and

future development

occurring at The Base.

Nathan and his

partner Briar

have three

children.

Tama potaka

Tama joined TGH in

December 2009 as General

Manager, Corporate Services

and practising Solicitor.

Tama worked as a lawyer in

the United States and New

Zealand. He is a graduate of

Columbia University, amongst

other educational institutions.

He has authored numerous

articles and is a regular public

speaker on constitutional

and Maaori development

issues. Tama is responsible

for corporate governance and

administration, legal issues,

people, policy, procedures,

and health and safety.

Tama was instrumental in

implementing TGH’s corporate

services and people strategies

in 2012.

Tama is married to Ariana and

has three children.

OUR MANAGEMENT

Our PeOPle

3 5

Tainui Group Holdings Annual Report 2012

maNagemeNT COmmiTTeeS

TGH has three management committees – Callum Brae

Tainui Management Committee, The Base Management

Development Committee, and The Base Management

Operations Committee – all of which meet regularly. The

purpose of these committees is to ensure that specific

projects are monitored, priorities are set and operational

and development objectives are on target.

The Callum Brae Management Committees includes

TGH management and joint venture partners. The two

management committees for The Base include Luke

Bunt, the former CFO of The Warehouse Group, as an

independent member. All committees are required to

report through to the TGH senior management team.

peOpLe STRaTegy

In the last 12 months, TGH

has continued its people

development plan entitled

‘People Strategy 2025’. The

core platforms of the strategy

are to foster conditions

where employees can

perform to their individual

potential, ensure that there

is a ‘TGH way’ of doing the

right things, and enhance the

people capacity to support

all strategy and service

issues.

Over the reporting period

the company facilitated

free medical checks and flu

injections for staff, as well

as team-building through

whitewater rafting and other

activities. TGH interacts with

the sole Shareholder on a

weekly basis to ensure our

corporate and administrative

support is aligned to the

Shareholder’s needs.

peRFORmaNCe maNagemeNT

TGH continues to focus on

performance management as

a key platform for ensuring

the company’s success. The

performance management

process focuses managers and

employees on performance

targets, measured over six

monthly and annual periods.

NUMBER OF EMPLOYEES WHO COmmeNCeD SeRviCe

Perm

ane

nt a

pp

oin

tme

nts

5

2012 2011

Fixe

d-t

erm

ap

po

intm

en

ts

2 2Fi

xed

-te

rm a

pp

oin

tme

nts

11

Perm

ane

nt a

pp

oin

tme

nts

NUMBER OF EMPLOYEES WHO LeFT SeRviCe

en

d o

f fixe

d te

rm

en

d o

f fixe

d te

rm

resi

gn

atio

ns

resi

gn

atio

ns

4

1

2011

2

oth

er

31

2012

2012 2011

NUMBER OF EMPLOYEES BY LeNgTh OF SeRviCe

<2

year

s

16

2-4

year

s

8

2-4

year

s

4

5-10

ye

ars

11

5-10

ye

ars

10

<2

year

s

19

ORgaNiSaTiONaL LeveLS 2012

54%

17%

12%

6%

11%

First Line Supervisors/Managers

Middle Management

Individual Contributors

Graduates

Senior Managers

eThNiCiTy 2012

New Zealander (born overseas)

18%

11%

34%

37%

Waikato-Tainui

New Zealander (born locally)

Other Iwi

eThNiCiTy 2011

21%

9%

30%

40%

New Zealander (born overseas)

Waikato-TainuiNew Zealander (born locally)

Other Iwi

Ou

r P

eO

Pl

e

3 6

TRaiNiNg aND DeveLOpmeNT

The Company encourages

training and development

for all team members, with a

significant focus on practical

engagement with our key

partners and stakeholders.

In the past year, Bell Gully,

McCaw Lewis and other

partners have presented

seminars on topical business

and economic issues.

External training priorities

have also been clarified

to better match course

selection with TGH’s skill and

competency requirements.

All employees are required

to have a training and

development plan focusing

on development and growth,

and this is monitored

during their performance

management process.

heaLTh aND SaFeTy

TGH is committed to

providing a safe workplace

and has promoted a higher

degree of health and

safety consciousness in the

workplace. This has involved

monthly hazard review

processes being undertaken

at key sites including The

Base.

Over the past financial year,

the company has had three

work related incidents, with

no hours lost out of more than

54,000 hours worked by all

its employees.

iNFORmaTiON TeChNOLOgy

The implementation

of a human resource

information system (HRIS)

has optimised the people

function by improving leave

management, as well as

efficiency and effectiveness

in people support. TGH

continues to assess intranet

and other opportunities

to improve engagement

of team members in the

company’s business.

Aubrey joined TGH as part of

its graduate programme and

then successfully applied for

a full-time job at The Base.

Poonam landed at TGH as

an accountant in 2007, and

has since been promoted

to the role of Management

Accountant. In 2011, she

successfully passed the

required exams to become a

Chartered Accountant.

They come from very different

backgrounds but there are

strong commonalities in their

experiences working for the

company.

The opportunities to learn

come top of the list. “I’d

recommend the company for

anyone interested in property,”

says Aubrey. “It has good

corporate disciplines in place

and provides a professional

work environment.”

At TGH he’s worked on the Te

AWA opening, investigated

the impact of the Emissions

Trading Scheme, co-managed

a small construction project

and developed a strategic

facilities management plan for

The Base.

“I’ve been given real

opportunities to grow

professionally. I’m not sure

I would’ve got that level of

exposure in a larger company.”

“New duties keep being

added to my job description!”

says Poonam happily. Her

responsibilities cover financial

management for both TGH

and the tribe, but she has also

picked up work on other TGH

subsidiaries and tribal entities.

“I can see myself being here for

a while. There’s a real variety of

things to do, and you’re given a

lot of responsibility.”

Both also value the culture.

“It’s a very open and friendly

workplace,” says Poonam.

Aubrey echoes this. “We’re a

really good team.”

a vaLueD WORkiNg eNviRONmeNT

aubrey Te kanawa is a Facilities manager at The Base.

poonam Sharma is a management accountant at Tgh.

2012 2011

NUMBER OF EMPLOYEES BY age

age

30-

50

age

30-

50

age

<30

age

<30

7

24 24

age

>50

4

age

>50

45

NUMBER OF EMPLOYEES BY geNDeR

22

Mal

e

2012 2011

Fem

ale

12

Fem

ale

13

Mal

e

21

OUR TEAM

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Tainui Group Holdings Annual Report 2012

gRaDuaTe pROgRamme

The graduate recruitment programme is designed to give two university graduates of Waikato-Tainui descent the

opportunity to develop their education, knowledge, skills and work experience by working at Tgh for a period of

two years. The programme includes secondment to one of Tgh’s key partners or advisors. With the programme

now in its fourth rotation, it continues to be an attractive placement opportunity for Waikato-Tainui graduates.

marie hurinui (Waikato-

Tainui and Ngaati Tuwharetoa)

is the fourth Accounting

and Finance Graduate

and commenced at TGH

in 2011. Marie recently

completed a Bachelor of

Management Studies degree

at the University of Waikato

with a major in accounting.

Marie is currently working

towards becoming a qualified

Chartered Accountant.

Tawa Campbell-Seymour

(Whakatohea, Ngaai Tai

and Te Aitanga-a-Maahaki)

was appointed the Property

Graduate in 2011 as the

fourth graduate in-take to

the Property team. Tawa

completed a Bachelor of

Management Studies (Hons.)

majoring in Economics and

Finance, in conjunction with a

Graduate Diploma in Te Reo

Maaori at The University of

Waikato. Whilst studying, he

took up a role as a Maaori

mentor providing academic

and pastoral support to first

and second year Maaori

Management students. He

also tutored a first year

microeconomics paper.

amy Wharakura (Waikato-

Tainui) started at TGH as

the Accounting and Finance

Graduate, having completed

a Bachelor of Management

Studies degree at the

University of Waikato majoring

in accounting. During the

reporting period, Amy

successfully completed New

Zealand Institute of Chartered

Accountants Foundations

Programme which is the first

of two requirements necessary

to become a Chartered

Accountant.

Whetu Taukamo (Ngaati

Ruanui, Ngaati Porou, Ngaati

Tu-hoe) joined TGH in 2010 as

the Property and Corporate

Services Graduate. With

Whetu working across both

property and corporate

services functions, the ‘hybrid’

graduate role was tailored to

suit his law and management

background. Graduating with a

Bachelor of Laws and Bachelor

of Management Studies with

a major in economics in 2010

Whetu also received a Master

of Laws (First Class Hons.) in

2011. In May 2012, Whetu was

appointed Junior Property

Manager with one of TGH’s

key partners, Greenstone

Group.

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matthew Cockram

Matthew was appointed as an

independent Director in 2011.

Matthew is the CEO and Principal of

Cooper and Company NZ, a highly

successful property development

and investment company based

in Auckland. Prior to that, Matthew

spent 20 years at law firm Bell Gully,

with the last 5 years as Chairman,

specialising in construction,

commercial property and major

projects.

mike allen

Appointed as an independent

Director in 2009, Mike has

considerable experience in

investment banking and general

management in New Zealand and the

United kingdom. Previously the Head

of the Westpac Institutional Bank in

New Zealand and Head of Mergers

and Acquisitions at Southpac.

John Spencer – Chairman

John is an independent Director and

was appointed Chairman in 2003

and will retire in June 2012. Prior

to the formation of Fonterra Co-

operative Group, he was the Chief

Executive Officer of the New Zealand

Dairy Group. John brings a wealth of

experience to TGH from directorships

and senior management positions

both in New Zealand and overseas.

Our DirectOrs

entity position

Coats PLC Chairman

Environment Investments Limited Director

Godfrey Hirst NZ Limited Director

Guinness Peat Group PLC Director

NZ Windfarms Limited Director

Tower Limited Director

Watercare Services Limited Director

entity position

Auckland Arena Carpark Company Director

Britomart Group of companies Director

Castlebrook Investments Limited Director

Cooper and Company NZ Director

entity position

DairyNZ Limited Director

Disputes Resolution Services Limited Director

kiwirail Chairman

Mitre10 NZ Limited Board Advisor

Tower Limited Director

WEL Networks Limited Chairman

3 9

Tainui Group Holdings Annual Report 2012

hon. koro Wetere

Having been on the Waikato-Tainui

Te kauhanganui Incorporated’s

Board in the past, koro has close ties

with TGH. koro brings knowledge

and experience from his former

Ministerial roles to the Board. koro

has been involved with community

projects throughout his career.

Rahui papa

Rahui was appointed in 2010 and

has a background in education and

tribal history. He is the Chairman

of Tainui Teachers Association and

the National Secondary Schools

kapa Haka Board. Rahui is also a

kiingitanga spokesperson, linguist

and historian.

Rukumoana Schaafhausen

Appointed to the board in 2009,

Rukumoana has been a member

of Waikato-Tainui Te kauhanganui

Incorporated since its inception in

1995. Having previously worked for a

large property development company

with a legal background specialising

in governance, Rukumoana has a

good understanding of TGH’s primary

business: investing in and developing

properties. Rukumoana is also the

Chair of the Waikato-Tainui Group

Audit and Risk Committee.

entity position

National Secondary Schools kapa Haka Chairman

Taniwha Media Limited Director

Waikato-Tainui Executive Member Te kauhanganui Incorporated (Te Arataura)

entity position

Genesis Energy Limited Director

New Zealand Centre for Social Innovation Trustee

Regional Facilities Auckland Limited Director

Waikato-Tainui koiora Limited Director

Waikato-Tainui Executive Member Te kauhanganui Incorporated (Te Arataura)

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TaiNui gROup hOLDiNgS LimiTeD (TGH)

The Board of Directors have pleasure in presenting

the Annual Report including the Audited Financial

Statements of TGH (the Company) and its subsidiaries

(the Group) for the year ended 31 March 2012.

pRiNCipaL BuSiNeSS aCTiviTy

TGH’s principal business activity is to manage the

commercial interests of the Shareholder, Waikato-

Tainui Te kauhanganui Incorporated which includes

assets returned by the Crown through the Waikato

Raupatu Claims Settlement Act 1995.

There have been no significant changes in the nature

of these activities during the year.

ReSuLTS

The results for the year are reported in the statements

of comprehensive income on page 51. The Group has

recorded a net profit of $39 million (2011: $23 million).

The Group’s total equity as at 31 March 2012 was $374

million (2011: $332 million). Further information on the

movements in equity is provided in note 10 on pages

66 and 67.

The Directors are satisfied with the results for the year.

DiReCTORS

The following persons held office as Directors of the

Company as at 31 March 2012:

Director Appointed

J L Spencer (Chairman) 30 January 2003

M N Allen 1 June 2009

M Cockram 25 March 2011

R S Papa 3 November 2010

R T M Schaafhausen 1 June 2009

Hon. K T Wetere 9 April 2002

There were no appointments or resignations of

Directors of the Company during the year.

The Director’s profiles are reported on pages 38 and

39.

The Company has eleven (2011: nine) subsidiaries

as listed in note 3 of the financial statements on page

63. M Pohio and T Potaka are the Directors of nine

(2011: seven) of the subsidiaries. M Pohio and N York

are Directors of one subsidiary and one subsidiary

is a limited partnership. M Pohio, T Potaka and N York

do not receive any remuneration or other benefits as

Directors of subsidiaries within the Group.

DiReCTORS RemuNeRaTiON

The remuneration received by Directors during the

year is as follows: Consolidated & Parent 2012 2011 $’000 $’000

J L Spencer (Chairman) 80 65

M N Allen 40 41

M Cockram (appointed 25 March 2011) 40 -

J Eriksen (resigned 31 December 2010) - 28

R S Papa (appointed 3 November 2010) 40 11

R T M Schaafhausen 40 32

Hon. K T Wetere 40 32

J Wilson (resigned 3 November 2010) - 19

280 228

uSe OF COmpaNy iNFORmaTiON By DiReCTORS

There were no notices from Directors of the Company

requesting to use company information received in

their capacity as Directors which would not otherwise

be available to them.

auDiTORS

PricewaterhouseCoopers has indicated their

willingness to continue in office. Audit fees paid to

PricewaterhouseCoopers are outlined in note 5 of the

financial statements on page 65.

DONaTiONS

There were no charitable donations made by the

Company or Group during the year ended 31 March

2012.

ShaRehOLDeR ReSOLuTiON

The Shareholder of the Company has exercised its

right under section 211(3) of the Companies Act 1993

and unanimously agreed that this Annual Report need

not comply with paragraphs (e), (g) and (h) of section

211(1) of the Act.

Signed for and on behalf of the Directors of the

Company on the 22nd of June 2012.

Mike Allen, Director

John Spencer, Chairman

DIRECTORS’ REPORT

4 1

Tainui Group Holdings Annual Report 2012

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WaikaTO-TaiNui FiSheRieS LimiTeD (WTF)

The Board of Directors have pleasure in presenting

the Annual Report including the unaudited Financial

Statements of WTF for the year ended 31 March 2012.

pRiNCipaL BuSiNeSS aCTiviTy

WTF’s principal business activity is to manage the

income shares held in Aotearoa Fisheries Limited under

the terms defined in the Maori Fisheries Act 2004.

There have been no significant changes in the nature

of these activities during the year.

ReSuLTS

The results for the year are reported in the statement

of comprehensive income on page 83. WTF has

recorded a net profit of $0.5 million (2011: $0.4 million).

WTF’s total equity as at 31 March 2012 is $14 million

(2011: $13 million).

The Directors are satisfied with the results for the year.

DiReCTORS

The following persons held office as Directors of WTF

as at 31 March 2012:

Director Appointed

J L Spencer (Chairman) 31 March 2008

M N Allen 1 June 2009

R S Papa 26 November 2010

R T M Schaafhausen 1 June 2009

Hon. K T Wetere 31 March 2008

There were no appointments or resignations of

Directors of the Company during the year.

The Director’s profiles are reported on pages 38 and

39.

DiReCTORS RemuNeRaTiON

There was no remuneration received by Directors

during the year ended 31 March 2012 (2011: nil).

uSe OF COmpaNy iNFORmaTiON By DiReCTORS

There were no notices from Directors of WTF

requesting to use company information received in

their capacity as Directors which would not otherwise

be available to them.

DONaTiONS

There were no charitable donations made by WTF

during the year ended 31 March 2012 (2011: nil).

ShaRehOLDeR ReSOLuTiON

The Shareholder of WTF has exercised its right

under section 211(3) of the Companies Act 1993 and

unanimously agreed that this Annual Report need not

comply with paragraphs (e), (g) and (h) of section

211(1) of the Act.

Signed for and on behalf of the Directors of WTF on

the 22nd of June 2012.

Mike Allen, Director

John Spencer, Chairman

GOVERNANCE

The Board of TGH is committed to the highest

standards of oversight, accountability and

management. It accepts this commitment by

supporting the increasing emphasis on corporate

governance in New Zealand, regularly reviewing

practices and making amendments where necessary.

TGH’s business practices reflect corporate

governance best practice in the following manner:

exTeRNaL BeNChmaRkS

While TGH’s policies and Charter provide explicit

expectations, the company has also adopted the nine

principles of corporate governance prescribed by the

Financial Markets Authority. These, as well as other

prescriptive doctrines such as NZX Listing Rules,

provide strong external benchmarks for developing

governance structures and processes. These

benchmarks are particularly useful to the Shareholder

and key stakeholders as they demonstrate TGH’s

commitment to ensuring that the Board operates

effectively and in accordance with best practice

guidelines.

The 9 principles in summary, are as follows:

Ethical Standards

Board Composition

Board Committees

Reporting and Disclosure

Remuneration

Risk Management

Auditors

Stakeholder Relations

Stakeholder Interests

The BOaRD ChaRTeR

The TGH Board operates in accordance with

the Board Charter (‘Charter’). The Charter is an

important document which outlines:

Board composition and method by which members •

are appointed;

Expected behaviour of the Board and its members;•

Discharge of authority to Board members;•

Commitment to compliance with all relevant laws •

and regulations; and

Committees that sit under the Board being: •

Audit Committee, Remuneration and Nomination

Committee, and Investment Committee.

eThiCaL STaNDaRDS

Through robust policy, the Board collectively and

individually promotes ethical and responsible

decision making and behaviour. There have been

no instances of unethical behaviour during the year

ended 31 March 2012 (2011: nil).

BOaRD COmpOSiTiON aND peRFORmaNCe

The Charter provides for a balance of independence,

skill, knowledge, experience and perspectives among

Directors so that the Board works effectively. The

Board consists of six Directors. Of the six Directors,

three are appointed by the Shareholder and three

are Independent Directors. The Chair is always an

Independent Director. The Directors consider that the

six member Board is appropriate for both the size and

business activity of TGH.

TGH is committed, through its Charter, to ensuring

Directors have the knowledge and information necessary

to discharge their responsibility effectively through the

provision of comprehensive information provided at

monthly (excluding January) Board meetings.

4 2

Audit committee – all members of the TGH board are members of the TGH audit committee

investment committee

remuneration & nomination committee

Board Audit Remuneration and nomination

Investment

M E M B E R Attended Possible Attended Possible Attended Possible Attended Possible

John Spencer 11 11 1 1 1 1 1 3

Mike Allen 10 11 1 1 1 1 1 3

Matthew Cockram 10 11 1 1 1 1 3 3

Rahui Papa 9 11 - 1 - - - -

Rukumoana Schaafhausen 10 11 1 1 - - - -

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

DiReCTOR iNDuCTiON

There were no new appointments or resignations

from the TGH Board during the year ended 31 March

2012. However, new Directors go through an induction

process which includes:

Meeting the senior management team (SMT), •

followed by presentations by each member of SMT

to describe their roles and accountabilities;

A tour of TGH’s major properties and investments; •

and

Meeting with key members of the Shareholder’s •

governors who sit on Te Arataura.

All Directors are covered by Directors and Officers

Liability Insurance for the term of their directorship

with TGH.

BOaRD COmmiTTeeS

The Board uses Committees to enhance its effectiveness

in key areas whilst retaining Board responsibility.

These Committees allow detailed and expert

examination of relevant issues to facilitate decision-

making. The Committees make recommendations to

the Board and have no decision-making ability unless

specifically delegated by the Board.

There are three Board Committees: the Remuneration

and Nomination Committee, the Audit Committee

and the Investment Committee. Further detail on

each Committee is provided on pages 44 and 45.

All Committee members must abide by the terms of

reference or Charter for that particular Committee.

The Audit Committee is comprised of the Board of

TGH. All Independent Directors are members of the

Remuneration and Nomination Committee and the

Investment Committee.

RepORTiNg aND DiSCLOSuRe

The Board demands integrity both in financial

reporting and in the timeliness and balance of

disclosures on TGH’s affairs. The Board Charter

creates effective policies and procedures to ensure

the integrity of financial information, responsibility for

which has been delegated to the Audit Committee.

Independent external auditors are also appointed

solely to provide statutory and other audit services.

The Audit Committee ensures that the external

auditor’s responsibilities are in accordance with the

requirements of the Board Charter.

RemuNeRaTiON

Remuneration of Directors and senior management

needs to be fair, transparent and reasonable.

Adequate remuneration is necessary to attract,

retain and motivate high quality directors and

executives. The Remuneration and Nomination

Committee oversees and recommends the process

for performance evaluation of the CEO and other key

executives. Further detail on the Remuneration and

Nomination Committee is provided on page 45.

RiSk maNagemeNT

TGH accepts that risk is an essential feature of

any business. TGH’s Risk Management Policy and

practices ensure effective analysis, management and

control of existing and potential risks. TGH maintains

a programme, which is approved by the Board,

for the identification, assessment, monitoring and

management of risk to the business. The Board has

overall responsibility for the internal controls with the

Audit Committee being responsible for reviewing

its effectiveness. TGH has engaged Ernst & Young as

internal auditors. The Board approved programme

they undertake focuses on providing internal audits

on policy, procedures, internal controls and any other

areas of concern. Effective risk management provides

greater assurance that TGH’s vision and strategy will

be achieved without surprises. New policies adopted

in 2012 are the Health and Safety Policy and the Media

PR Policy.

auDiTORS

External auditing is critical for integrity in financial

reporting. To properly perform their role, auditors

must observe the professional requirements of

independence, integrity, and objectivity. They need to

have access to all relevant information and individuals

within an entity that play a role in its financial reporting

processes.

The Board and the auditors are jointly responsible

for ensuring that an entity’s audit is conducted in the

context described above. TGH requires structures that

promote auditors’ independence from the Board and

executives, protect auditors’ professional objectivity

in the face of other potential pressures, and facilitate

access to information and personnel.

The Audit Committee has a crucial role in selecting and

recommending Board and Shareholder appointment

of auditors, and in overseeing all aspects of their

work. PricewaterhouseCoopers continued as external

auditors of the Group in the current financial year.

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Tainui Group Holdings Annual Report 2012

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ShaRehOLDeR ReLaTiONS

TGH has an active relationship with its sole

Shareholder, Waikato-Tainui Te kauhanganui

Incorporated. A Statement of Corporate Intent (SCI)

formally documents the necessary understanding

that must exist between TGH and its Shareholder and

is a living representation of the expectations of each

party. Although some of its provisions apply for several

years, the SCI is revised annually.

The SCI sets out TGH’s key objectives, guiding

principle and values. It highlights the importance

of the company’s brand and reputation, provides

financial reporting targets and sets out the accounting

policies that will be maintained in accordance with

the relevant statutory provisions. The SCI clarifies the

requirements of the dividend policy. It also requires

Shareholder approval should any capital expenditure,

acquisition or divestment occur that exceeds 30%

of the total assets of the parent entity. Finally, the SCI

outlines the necessary information that TGH must

provide to the Shareholder. A full description of the

SCI can be found on the TGH website.

On an annual basis, TGH and the Shareholder conduct

a joint strategic planning session. Both the TGH Board

and the Shareholder Board fundamentally agree that a

close working relationship should be nurtured to draw

on each other’s respective commercial and social

expertise to progress strategic initiatives.

TGH also provides its Shareholder with corporate

services through a service level agreement which

includes treasury management, financial services,

property management and people support services.

The provision of such services by TGH to the

Shareholder creates cost efficiencies and cohesion.

The Board of TGH is committed to ensuring

that the members of Waikato-Tainui, through the

tribal parliament, are kept abreast of the ongoing

performance of the company. This is prescribed in the

Charter. TGH’s financial results are presented to the

Shareholder’s executive on a monthly basis and to the

tribal parliament every quarter. This is an opportunity

to increase awareness and receive feedback on TGH’s

development projects and its operational performance.

SeTTiNg STRaTegy

The aspirations of Waikato-Tainui span many

generations. The vision and strategy of TGH is

consistent with this long term view. Projects are forecast

well in advance of turning the first sod. This is achieved

through a concerted and ongoing strategy setting

process which utilises financial modeling and business

intelligence tools. At a minimum, TGH maintains a

15 year outlook which recognises the completion of

existing projects (i.e. what we know for sure), and the

initiation of new ones (i.e. unchartered territory).

This process of strategy setting culminates with an

annual, two day meeting with the TGH Board and

senior management. Day one is an opportunity for

senior management to present the strategy, and for

the Board to challenge the proposed direction and

offer guidance where appropriate. The second day

incorporates the Shareholder executive, Te Arataura.

This is a useful opportunity for the Shareholder

representatives to observe the alignment of TGH’s

aspirations, with those of the Shareholder, as stipulated

in the SCI.

STakehOLDeR iNTeReSTS

Whilst the Shareholder relationship is paramount,

TGH’s relationships with wider stakeholders,

including the community, customers and suppliers

are considered on page 28 and 30 to 33 respectively..

TGH’s Communications Policy ensures that a

consistent and credible approach is applied to

communication with all stakeholders.

auDiT COmmiTTee

All members of the TGH Board are members of the

Audit Committee. The Audit Committee Charter

is incorporated in the Board Charter. The Audit

Committee has continual oversight and responsibility

for financial reporting, audit functions, risk

management and internal controls. More specifically,

the Audit Committee’s objectives include:

Reporting of financial information;•

Application of accounting policies;•

Financial management;•

Internal control systems;•

Risk management systems;•

Business policies and practices;•

Protection of the Group’s assets; and •

Compliance with applicable laws, regulations, •

standards and financial disclosure best practice

guidelines.

4 4

During the year, one meeting was dedicated to Audit

Committee business for the purpose of approving the

annual financial statements. All other Audit Committee

business was addressed at regular Board meetings.

RemuNeRaTiON aND NOmiNaTiON COmmiTTee

As a sub-committee of the Board, the responsibility

and role of the Remuneration and Nomination

Committee (RNC) is the appointment and

remuneration of Directors and senior management

and other related matters. The RNC’s objectives are to

assist and advise the Board in relation to:

The CEO appointment and remuneration;•

Performance management and appraisal of the •

CEO;

Succession planning;•

Setting annual incentive targets and objectives for •

the CEO and the CEO’s direct reports;

Approving the remuneration of the CEO’s direct •

reports;

The appointment and succession of the Board •

Directors, especially Independent Directors and/or

Advisors to the Board;

Independent Directors’ and Advisors remuneration; •

and

Any other matter referred to it by the Board.•

Senior management’s annual incentives are

determined by key performance indicators as

stipulated in their individual employment agreements.

Any changes in remuneration are based on

performance and market comparisons.

The total remuneration paid to Directors is reported on

page 40. The Directors do not participate in any profit

based incentive system. No additional Directors fees

are paid for Committee members. Additional fees are

paid to Independent Directors where their services

are required in excess of specified requirements.

iNveSTmeNT COmmiTTee

As a sub-committee of the Board, the responsibility

and role of the Investment Committee is to assist and

advise the Board in relation to investment activities

with the following objectives:

To review investment policy;•

To review the appointment of investment advisors •

and fund managers;

To monitor investment and fund manager •

performance;

To monitor compliance with investment policies •

and mandates;

To recommend to the TGH Board on matters noted •

above; and

To monitor the investment policy, strategy and •

framework for decision making.

The Investment Committee met three times during the

year.

STaTemeNT OF iNveSTmeNT pOLiCy aND OBJeCTiveS (SipO)

The SIPO underpins TGH’s primary strategic

objective: to maximise Shareholder wealth by

implementing a sustainable asset portfolio supported

by appropriate financing and distribution policies. Not

surprisingly, this is also TGH’s mission statement. The

SIPO responds to the choice between diversification

and specialisation of TGH’s asset portfolio by

assessing the company’s influence or control over an

investment alternative, and the extent to which TGH

has expertise.

Under certain conditions, the SIPO does permit

TGH to invest in opportunities where there may not

be a controlling interest, but where the investment

is consistent with TGH’s commitment to furthering

economic development. These may include pooled

investments, for example minority holdings in

listed securities, or iwi co-owned investments by

arrangement.

Finally, the SIPO defines the responsibilities and

delegation of the Board of Directors, the Investment

Committee and the senior management.

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Tainui Group Holdings Annual Report 2012

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ChieF exeCuTive OFFiCeR aND BOaRD iNTeRReLaTiONShip

While the Board needs to allow the CEO to carry

out the CEO’s role, this need is balanced by the

overarching obligation of the Board to supervise and

scrutinise the CEO appropriately. It is the Chair’s

role to lead and manage the Board so that it operates

effectively and to facilitate interaction between the

Board and the CEO. The CEO is responsible for day to

day leadership and management. A formal delegation

of authority to the CEO sets out specific authority to

manage the day to day business and the restrictions

and limitations that apply. The roles of the Chairman

and the CEO are, and always have been, separate

at TGH. The Chairman and the CEO regularly meet

between Board meetings.

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FROm The STaRT OF The 2013 FiNaNCiaL yeaR TheRe aRe a NumBeR OF ChaNgeS TO The Tgh BOaRD. They aRe:

SiR heNRy vaN DeR heyDeN –

iNDepeNDeNT DiReCTOR

(FROm 1 JuLy 2012)

Sir Henry is standing down as Chairman of

Fonterra. He is also a director of Auckland

International Airport Ltd, Rabobank

Australia, Rabobank NZ, Elevation Capital

Management Ltd, Pascaro Investments Ltd

and Manuka Ltd.

paki RaWiRi – ShaRehOLDeR

DiReCTOR (FROm 30 apRiL 2012)

Mr Rawiri is an Iwi and Maaori

development consultant, and holds

Directorships on a number of iwi

commercial companies. He is a former

General Manager of Waikato-Tainui

commercial fishing companies and

from 2002-2009 managed the transfer

of fisheries assets to individual iwi at

Te Ohu kaimoana.

hemi Rau – ShaRehOLDeR

DiReCTOR (FROm 30 apRiL 2012)

Mr Rau was the CEO of the Waikato

Raupatu Lands Trust from 2002-2009. He

was a Te kotahitanga Marae representative

on the inaugural Te kauhanganui in 1999,

and was Deputy Chair of the inaugural

Tribal Executive from 2000-2002.

JOaNNa peRRy – BOaRD aDviSOR

(FROm 1 apRiL 2012)

Ms Perry is a Chartered Accountant

and professional director. Her board

appointments include Genesis Energy,

Trade Me, Partners Life, The Co-operative

Bank, Rowing New Zealand and Sport and

Recreation New Zealand.

“It’s been extremely rewarding,” he says.

“I’m hugely satisfied with what TGH has

been able to achieve, and have absolutely

no regrets.”

TGH pretty much runs itself these days,

he says. “It’s a well-oiled machine and I’ve

been able to be more hands-off.”

Things were a little different when he first

started, and it was largely a full-time job

for the first few years.

Before joining TGH he was working in

Dunedin, having finished up as CEO of NZ

Dairy Group following the merger of NZ

Dairy and kiwi Co-op to form Fonterra.

He was approached to go onto the TGH

Board, and agreed to think about it.

Spencer’s first move was to ask to become

a Director of a Ngai Tahu Holdings Group

subsidiary so he could learn what was

involved in governance of an iwi-owned

company.

Taking on a new challenge

After discussions with Waikato-Tainui and

a number of advisors, Spencer accepted

the role in 2002, becoming not just an

independent Director but Chairman as well.

Crucial to his acceptance was Rob McLeod

and koro Wetere agreeing to join him.

“I took it on because I saw it as a personal

challenge. I wanted to prove that proper

governance structures work for everyone,

regardless of race, creed or activity.”

Others saw it differently, and he was initially

taken aback by some of their reactions.

“Two days after the announcement,

for example, someone said to me, “So

they finally got to the S’s I see.” (S’s as in

Spencer).

“One of the things that has kept me here

and spurred me on was those early

negative comments I got.”

keys to success

Looking back, he says the initial losses

that the tribe suffered were in many ways

a blessing in disguise.

“They allowed a framework to be created.

Your board and company policies on

day one might only be few in number,

but they grow. The key is to put them

down in writing. A key document in the

beginning was the adoption of a Board

Charter which clearly set out the duties

and powers of the TGH Board and its

relationship with its Shareholder.

“If you set proper standards, people

want to reach those standards, and over

time they get higher and higher. It’s

important to never be satisfied. You should

always want to do better next time.”

As Chairman, Spencer has always asked

for honesty and contribution in the

Boardroom. “Team chemistry and mutual

respect is extremely important. You don’t

get openness without it.

“At TGH the senior management team

attends Board meetings. The lines are clear,

but the question always is, ‘Where are

we going and what is the best way to get

there?’ The only time senior management

is not present is when we’re discussing

remuneration or sensitive tribal issues.”

There is a fifty-fifty split of independent

and tribally appointed Directors on the

Board, but he says they’ve never had to

take a vote. Decisions have always been

unanimous.

Spencer reflects that over the last ten

years attitudes have gradually changed

toward the company, and today he

receives numerous calls from people

wanting to be involved with TGH.

“That’s because we’ve got the runs on

the board and more people have come

to understand the very important role iwi

commercial companies will play in the

future prosperity of the country.

The future

Spencer sees TGH’s strengths today as its

structure, its governance, the quality of its

people and a clear vision of what it wants

to achieve.

“What we’ve tried to do is set in place

enduring value for the company and the

tribe, and the thing I’m really proud of is

the people. This team could do anything.”

John Spencer

Proving the worth of good governance

JOhN SpeNCeR ReTiReS ON 30 JuNe 2012 aS aN

iNDepeNDeNT DiReCTOR. he haS SpeNT The LaST

DeCaDe ON The BOaRD, aND haS BeeN ChaiRmaN

ThROughOuT.

4 7

Tainui Group Holdings Annual Report 2012

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tainui grOuP hOlDings limiteDFive yeaR TReND STaTemeNTFor the year ended 31 March 2012

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

Income Statement

Net operating profit after tax 20,248 14,499 15,896 11,940 18,488

Net profit/(loss) 39,353 22,659 34,069 (27,035) 38,114

Revenue 54,803 34,655 30,141 26,287 30,575

Finance cost - net (13,216) (8,168) (4,711) (5,854) (3,199)

Net fair value gains/(losses) 19,105 8,160 18,173 (38,975) 19,626

Distribution 10,090 10,500 10,000 10,000 10,500

Balance Sheet

Total assets 680,099 645,091 516,467 484,247 521,846

Net assets 373,883 332,018 314,787 291,351 289,037

Current assets 24,243 17,028 11,762 14,195 12,183

Non-current assets 655,856 628,063 504,705 470,052 509,663

Current liabilities - including Shareholder advance 116,321 166,666 107,402 84,684 119,459

Current liabilities - Shareholder advance 74,027 74,027 74,027 74,027 114,027

Current liabilities - excluding Shareholder advance 42,294 92,639 33,375 10,656 5,432

Non-current liabilities 189,895 146,407 94,278 108,212 113,350

Non-controlling interest 8,921 9,300 1,539 - -

Bank debt 180,152 186,650 87,700 74,845 72,900

Net cash debt (173,895) (184,399) (85,042) (68,913) (70,086)

Cashflow Statement

Net operating cash inflow 21,269 14,430 21,119 16,144 14,514

Net investing cash outflow (8,065) (103,287) (27,248) (7,771) (70,722)

Net financing cash inflow/(outflow) (9,198) 88,450 2,855 (5,255) 54,718

Key Ratios

Return on Shareholder funds 11% 7% 11% -9% 13%

Return on Shareholder funds - including advance 9% 6% 9% -7% 9%

Return on total assets 6% 4% 7% -6% 7%

Total asset growth 5% 25% 7% -7% 38%

Debt/equity ratio 48% 56% 28% 26% 25%

Debt/total assets 26% 29% 17% 15% 14%

financial infOrmatiOn

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Tainui group holdings Limited

50 Directory

51 Statements of comprehensive income

52 Statements of financial position

53 Statements of changes in equity

54 Statements of cash flows

55 Notes to the financial statements

81 Independent auditors’ report

Waikato-Tainui Fisheries Limited

82 Directory

83 Statements of comprehensive income

83 Statements of financial position

84 Statements of changes in equity

85 Notes to the financial statements

4 9

FINANCIAL STATEMENTS

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tainui grOuP hOlDings limiteDDiReCTORyFor the year ended 31 March 2012

Date of establishment 10 June 1998

mission Statement To maximise Shareholder wealth by maintaining a sustainable asset portfolio supported by

appropriate financing and dividend policies.

Shareholder Waikato-Tainui Te kauhanganui Incorporated

Board of Directors John Spencer (Chairman)

Michael Allen

Matthew Cockram

Rahui Papa

Rukumoana Schaafhausen

Hon. koro Wetere

Chief executive Mike Pohio

auditor PricewaterhouseCoopers

Private Bag 92162, Auckland 1142

Solicitors Bell Gully

McCaw Lewis

Banks Bank of New Zealand

Westpac Banking Corporation

Registered Office 4 Bryce Street, Hamilton 3204

postal address P O Box 19295, Hamilton 3244

Telephone +64 7 834 4880

Facsimile +64 7 834 4881

Website www.tgh.co.nz

5 1These financial statements should be read in conjunction with the accompanying notes.

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ntainui grOuP hOlDings limiteDSTaTemeNTS OF COmpReheNSive iNCOmeFor the year ended 31 March 2012

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

Revenue 4 54,803 34,655 7,814 6,576

Expenses 5 (22,061) (12,320) (5,738) (4,366)

Finance costs - bank loans (13,216) (8,168) (11,754) (8,168)

Finance income - short term deposits 181 193 151 129

Share of net profit of associates 6 541 139 - -

Net operating profit/(loss) for the year 20,248 14,499 (9,527) (5,829)

Other gains - net 8 19,105 8,160 6,775 4,399

Net profit/(loss) for the year 39,353 22,659 (2,752) (1,430)

Other comprehensive income for the year

Profit/(loss) on revaluation of farm and other properties 10 2,872 (2,689) 2,872 (2,689)

Other comprehensive income for the year 2,872 (2,689) 2,872 (2,689)

Total comprehensive income for the year, net of tax 42,225 19,970 120 (4,119)

Profit is attributable to:

Equity holders of Tainui Group Holdings Limited 39,372 22,659

Non-controlling interest (19) -

39,353 22,659

Total comprehensive income for the year is attributable to:

Equity holders of Tainui Group Holdings Limited 42,244 19,970

Non-controlling interest (19) -

42,225 19,970

5 2 These financial statements should be read in conjunction with the accompanying notes.

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

EQUITy

Contributed equity 9 60,000 60,000 60,000 60,000

Retained earnings 10 286,589 247,217 7,308 10,060

Reserves 10 18,373 15,501 11,151 8,279

364,962 322,718 78,459 78,339

Non-controlling interest 8,921 9,300 - -

Total equity 373,883 332,018 78,459 78,339

ASSETS

Current assets

Cash and cash equivalents 6,257 2,251 2,054 1,023

Trade and other receivables 11 4,254 9,317 1,196 942

Inventories 12 4,202 4,617 - -

Biological assets 13 1,082 843 1,082 843

Advances - related parties 14 8,448 - 254,339 217,388

Total current assets 24,243 17,028 258,671 220,196

Non-current assets

Other financial assets 15 5,385 57,407 5,294 57,226

Investments in associates 6 13,485 13,151 - -

Investments in subsidiaries - - 947 947

Intangible assets 16 20,488 20,672 14,617 14,792

Property, plant and equipment 17 84,895 76,411 20,365 17,493

Investment properties 18 528,412 457,728 81,033 71,778

Biological assets 13 3,191 2,694 - -

Total non-current assets 655,856 628,063 122,256 162,236

Total assets 680,099 645,091 380,927 382,432

LIABILITIES

Current liabilities

Trade and other payables 19 11,081 20,225 3,446 5,180

Interest bearing liabilities 20 30,300 72,000 30,300 72,000

Advances - related parties 14 74,940 74,441 108,058 97,756

Total current liabilities 116,321 166,666 141,804 174,936

Non-current liabilities

Interest bearing liabilities 20 149,852 114,650 121,667 97,400

Other financial liabilities 21 40,043 31,757 38,997 31,757

Total non-current liabilities 189,895 146,407 160,664 129,157

Total liabilities 306,216 313,073 302,468 304,093

Total net assets 373,883 332,018 78,459 78,339

tainui grOuP hOlDings limiteDSTaTemeNTS OF FiNaNCiaL pOSiTiONAs at 31 March 2012

Michael Allen, Director22 June 2012

John Spencer, Chairman22 June 2012

5 3These financial statements should be read in conjunction with the accompanying notes.

Tainui Group Holdings Annual Report 2012

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ntainui grOuP hOlDings limiteDSTaTemeNTS OF ChaNgeS iN equiTyFor the year ended 31 March 2012

Attributable to owner of the ParentCONSOLIDATED Contributed Revaluation Retained Non-controlling Total equity reserves earnings Total interest equity $’000 $’000 $’000 $’000 $’000 $’000

Balance as at 1 April 2010 60,000 18,190 235,058 313,248 1,539 314,787

Comprehensive incomeNet profit for the year - - 22,659 22,659 - 22,659

Other comprehensive income

Loss on revaluation of farm and other properties - (2,689) - (2,689) - (2,689)

Total comprehensive income - (2,689) 22,659 19,970 - 19,970

Transactions with owner of the ParentDividend paid - - (10,500) (10,500) - (10,500)

Total transactions with owner of Parent - - (10,500) (10,500) - (10,500)Minority interest - - - - 7,761 7,761

Balance as at 31 March 2011 60,000 15,501 247,217 322,718 9,300 332,018

Balance as at 1 April 2011 60,000 15,501 247,217 322,718 9,300 332,018

Comprehensive incomeNet profit for the year - - 39,372 39,372 (19) 39,353

Other comprehensive incomeGain on revaluation of farm and other properties - 2,872 - 2,872 - 2,872

Total comprehensive income - 2,872 39,372 42,244 (19) 42,225

Minority interest - - - - (360) (360)

Balance as at 31 March 2012 60,000 18,373 286,589 364,962 8,921 373,883

PARENT

Balance as at 1 April 2010 60,000 10,968 21,990 92,958 - 92,958

Comprehensive income

Net loss for the year - - (1,430) (1,430) - (1,430)

Other comprehensive income

Loss on revaluation of farm and other properties - (2,689) - (2,689) - (2,689)

Total comprehensive income - (2,689) (1,430) (4,119) - (4,119)

Dividend paid - - (10,500) (10,500) - (10,500)

Total transactions with owner of Parent - - (10,500) (10,500) - (10,500)

Balance as at 31 March 2011 60,000 8,279 10,060 78,339 - 78,339

Balance as at 1 April 2011 60,000 8,279 10,060 78,339 - 78,339

Comprehensive income

Net loss for the year - - (2,752) (2,752) - (2,752)

Other comprehensive income

Gain on revaluation of farm and other properties - 2,872 - 2,872 - 2,872

Total comprehensive income - 2,872 (2,752) 120 - 120

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

Michael Allen, Director22 June 2012

5 4 These financial statements should be read in conjunction with the accompanying notes.

tainui grOuP hOlDings limiteDSTaTemeNTS OF CaSh FLOWSFor the year ended 31 March 2012

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

Cash flows from operating activities

Receipts from customers 59,497 33,051 6,967 5,355

Payments to suppliers (25,193) (10,646) (3,930) (3,972)

Interest received 181 193 151 129

Interest paid (13,216) (8,168) (11,754) (8,168)

Net cash generated from/(used in) operating activities 22 21,269 14,430 (8,566) (6,656)

Cash flows from investing activities

Receipts from sale of investments in listed companies 57,375 - 57,375 -

Payments for investments in unlisted companies (683) (546) (683) (546)

Amounts received from/(paid to) related parties (7,949) 414 (26,649) (63,842)

Payments for property, plant and equipment (8,230) (38,639) (287) (146)

Proceeds from sale of property, plant and equipment 13 22 10 -

Payments for intangible assets (36) (49) (36) (33)

Payments for investment properties (48,555) (67,846) - -

Proceeds from sale of investment properties - 3,357 - -

Net cash generated from/(used in) investing activities (8,065) (103,287) 29,730 (64,567)

Cash flows from financing activities

Proceeds from borrowings - 98,950 - 81,700

Repayment of borrowings (6,498) - (17,433) -

Dividends paid to Company’s Shareholder 14 (2,700) (10,500) (2,700) (10,500)

Net cash generated from/(used in) financing activities (9,198) 88,450 (20,133) 71,200

Net increase/(decrease) in cash and cash equivalents 4,006 (407) 1,031 (23)

Cash and cash equivalents at the beginning of the year 2,251 2,658 1,023 1,046

Cash and cash equivalents at end of year 6,257 2,251 2,054 1,023

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Tainui Group Holdings Annual Report 2012

tainui grOuP hOlDings limiteDNOTeS TO The FiNaNCiaL STaTemeNTSFor the year ended 31 March 2012

1 general information

Tainui Group Holdings Limited (the ‘Company’ or ‘Parent’) and its subsidiaries (together referred to as ‘the Group’) have

the following principal activities in New Zealand:

- property investment;

- property development;

- hotels;

- fishing, and

- investments.

The Company is a limited liability company incorporated and domiciled in New Zealand.

These consolidated financial statements have been approved for issue by the Board of Directors on the 22nd of June 2012.

The Group’s Directors do not have the power to amend the financial statements once they have been issued.

2 Summary of significant accounting policies

These consolidated financial statements have been prepared in accordance with Generally Accepted Accounting

Practice in New Zealand (‘NZ GAAP’). They comply with the New Zealand equivalents to International Financial

Reporting Standards (‘NZ IFRS’) and other applicable financial reporting standards as appropriate for profit-oriented

entities that qualify for and apply differential reporting concessions.

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies

have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The financial statements include separate financial statements for Tainui Group Holdings Limited as an individual entity

and the consolidated Group consisting of Tainui Group Holdings Limited and its subsidiaries.

The Company and Group are designated as profit-oriented entities for financial reporting purposes.

Statutory base

Tainui Group Holdings Limited is a company registered under the Companies Act 1993. The financial statements have

been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Companies Act 1993.

Historical cost convention

The consolidated financial statements have been prepared under the historical cost convention, as modified by the

revaluation of farm land and buildings, investment properties, biological assets, financial assets and liabilities (including

derivative instruments) at fair value through profit or loss which are carried at fair value.

Differential reporting

The Company and Group are qualifying entities within the Framework for Differential Reporting. The Company and

Group qualify on the basis that they are not publicly accountable and there is no separation between the owners and

governing body of the Company. The Company and Group have taken advantage of all differential reporting exemptions,

except for the following with which they have fully complied:

- NZ IAS 7 - cash flow statements

- NZ IAS 18 - revenue

- NZ IAS 41 - agriculture

2.2 Changes in accounting policy and disclosures

New and amended standards adopted by the Group

The Company and Group have not adopted any new standards during the year.

5 65 6

2.3 Critical accounting estimates

The preparation of financial statements in conformity with NZ IFRS requires the use of certain critical accounting

estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting

policies. The estimates and judgements are reviewed by management on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised. The following are the critical estimates and

judgements management has made in the process of applying the Group’s accounting policies and that have the most

significant impact on the amounts recognised in the financial statements.

(a) Fair value of assets and liabilities

The Company and Group record certain assets and liabilities at fair value in the statement of financial position as follows:

Investment properties (note 18), farm and other properties (note 17) have been valued by independent valuers as at 31

March 2012 and 31 March 2011 using a mixture of market evidence of transactional prices for similar properties, direct

comparison, capitalisation and discounted cash flow approaches.

Biological assets (note 13) comprise livestock and forests. Both are valued by independent valuers using current market

prices less point of sale costs (livestock) and expectation value method less point of sale costs (forests).

Other financial assets at fair value through profit or loss (note 15) include shares in unlisted companies held at fair value.

The fair value of these shares, in the absence of quoted prices, has been determined using valuation techniques.

Interest rate swaps (note 21) are valued using discounted cash flow techniques.

The determination of fair value for each of the assets and liabilities above requires significant estimation and judgement

which have a material impact on the statement of comprehensive income and statement of financial position.

(b) Impairment testing

Intangible assets with indefinite useful lives being quota (note 16) are required to be tested for impairment at least

annually. This requires an estimation of the recoverable amount of the quota based on the higher of value in use or fair

value less costs to sell. The determination of the recoverable amount of the quota requires significant estimation and

judgment.

2.4 principles of consolidation

(i) Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the

financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights.

The existence and effect of potential voting rights that are currently exercisable or convertible are considered when

assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is

transferred to the Group. They are de-consolidated from the date that control ceases.

The Group uses the acquisition method of accounting to account for business combinations. The consideration

transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and

the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability

resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable

assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at

their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling

interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net

assets.

Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration

arising from contingent consideration amendments. Cost also includes direct attributable costs of investment.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the

acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the

identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary

acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive

income.

NOTeS TO The FiNaNCiaL STaTemeNTS CONTiNueD

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Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated.

Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to

ensure consistency with the policies adopted by the Group.

(ii) Transactions with non-controlling interests

The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For

purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired

of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling

interests are also recorded in equity.

When the Group ceases to have control or significant influence, any retained interest in the entity is re-measured to its

fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount

for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset.

In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted

for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously

recognised in other comprehensive income are reclassified to profit or loss.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the

amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

(iii) Associates

Associates are all entities over which the Group has significant influence but not control, generally evidenced by holding

of between 20% and 50% of the voting rights. Investments in associates are accounted for in the consolidated financial

statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in

associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (refer to note 6).

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the statement of comprehensive

income, and the Group’s share of post-acquisition revaluation in property, plant and equipment is recognised in reserves.

The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends

receivable from associates are recognised as a reduction in the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other

unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made

payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest

in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the

asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the

policies adopted by the Group.

(iv) Joint ventures

The proportionate interests in income of a jointly controlled operation have been incorporated in the financial statements

under the appropriate headings.

The Group’s interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines

its share of joint ventures’ individual income and expenses, assets and liabilities on a line by line basis with similar items

in the Group’s financial statements.

The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that is

attributable to the other venturers. The Group does not recognise its share of the profits or losses from the joint venture

that result from the Group’s purchase of assets from the joint venture until it sells the assets to an independent party.

However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net

realisable value of current assets, or an impairment loss.

Joint ventures’ accounting policies have been changed where necessary to ensure consistency with the policies adopted

by the Group.

5 85 8

(v) Functional and presentation currency

Items included in the financial statements of each of the subsidiaries’ operations are measured using the currency of the

primary economic environment in which it operates (‘the functional currency’). The consolidated financial statements are

presented in New Zealand dollars, which is the Company’s functional currency and the Group’s presentation currency.

2.5 Revenue recognition

Revenue comprises the fair value of the sale of goods and services, net of Goods and Services Tax (GST), rebates and

discounts and after eliminating sales within the Group. Revenue is recognised as follows:

(i) Hotel income

Revenue from hotels comprises amounts earned in respect of services, facilities and goods supplied. Any revenue

not recognised, but received by the reporting date, is treated as deposits in advance, and shown as a liability in the

Statement of Financial Position.

(ii) Rental income

Rental income is recognised on a straight line basis over the lease term.

(iii) Sales of goods

Sales of goods are recognised when the Group has transferred the significant risks and rewards of ownership of the

goods sold. For sections, recognition is on the sale contract becoming unconditional and the title passing. The recorded

revenue is the gross amount of the sale.

(iv) Quota lease income

Quota lease income is recognised when the Group has receipted income from the quota lessee. Quota is recognised on

a monthly accruals basis.

(v) Dairy income

Dairy income is recognised when the Group has transferred the significant risks and rewards of ownership of the goods

sold.

(vi) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is

impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow

discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income.

Interest income on impaired loans is recognised using the rate of interest used to discount the future cash flows for the

purpose of measuring the impairment loss.

(vii) Dividend income

Dividend income is recognised when the right to receive payment is established.

(viii) Government grants

Government grants are assistance provided by the Government in the form of transfers of resources to the Group in

return for past or future compliance with certain conditions relating to operating activities of the Group. The Group was

eligible for and has received units under the New Zealand Emission Trading Scheme as part of the fisheries allocation for

quota owned. The fair value of units received is recognised in the statement of comprehensive income on allocation by

the Government to the Group.

2.6 employee benefits

Liabilities are recognised for benefits accruing to employees in respect of wages and salaries, annual leave, and sick

leave where it is probable that settlement will be required and they are capable of being measured reliably.

Liabilities in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values

using the remuneration rate expected to apply at the time of settlement.

Liabilities in respect of employee benefits which are not expected to be settled within 12 months are measured at

NOTeS TO The FiNaNCiaL STaTemeNTS CONTiNueDNote 2.4 continued

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the present value of the estimated future cash outflows to be made by the Group in respect of services provided by

employees up to reporting date.

The Group recognises a liability and an expense for bonuses based on a formula that takes into consideration the

achievements of agreed key performance indicators, including the achievement of financial budget targets. The Group

recognises a provision where contractually obliged or where there is a past practice that has created a constructive

obligation.

2.7 Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as

operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to

the statement of comprehensive income on a straight-line basis over the period of the lease.

Property interests held by a lessee under an operating lease are recognised as part of the carrying amount of the

investment property with a corresponding liability at fair value through profit or loss being recorded.

2.8 Borrowing costs

Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is

required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed.

The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the rate associated with

project related borrowings or the weighted average interest rate applicable to the Group’s outstanding borrowings

during the year.

2.9 Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term, highly liquid

investments with original maturities of three months or less that are readily convertible to known amounts of cash and

which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within

borrowings in current liabilities in the statement of financial position.

2.10 Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for

doubtful debts.

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are

written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not

be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the

difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at

the effective interest rate. The amount of the provision is recognised in the statement of comprehensive income within

expenses.

When a trade receivable is uncollectible, it is written off. Subsequent recoveries of amounts previously written off are

credited against other expenses in the statement of comprehensive income.

2.11 inventories

Inventories are stated at the lower of cost and net realisable value. Cost of inventory is comprised of section costs

and other direct costs using the weighted average cost basis. Net realisable value is the estimated selling price in the

ordinary course of business less estimated costs of completion and the estimated costs necessary to make the sale.

2.12 Biological assets

Biological assets are measured at fair value less estimated point of sale costs. The fair value of livestock is determined

based on market prices of livestock of similar age, breed and genetic merit. The fair value of trees is determined

annually by independent valuers by calculating the crop expectation and future value discounted back to the present

value, based on the rotation age of the crop and the current market prices of the logs. The valuation of Redwood trees is

based on the current replacement cost method used for young trees.

6 06 0

2.13 Financial assets and liabilities

Recognition and measurement

A financial asset or liability is recognised if the Group becomes party to the contractual provisions of the instrument.

Regular purchases and sales of financial assets and liabilities are recognised on the trade date, the date on which the

Group commits to purchase or sell the asset or liability. A financial asset or liability is recognised initially at its fair value

and in the case of a financial asset or liability measured at amortised cost includes transaction costs that are directly

attributable to the acquisition or issue of the instrument.

Financial assets and liabilities measured at amortised cost

Financial assets and liabilities measured at amortised cost are non-derivative financial assets and liabilities which meet

the following criteria:

a) held within a business model whose objective is to hold an instrument in order to collect contractual cash flows; and

b) the contractual terms of the instrument gives rise on specified dates to cash flows that are solely payments of

principal and interest on the principal amount outstanding.

A gain or loss on a financial asset and liability that is measured at amortised cost and is not part of a hedging relationship

is recognised in profit and loss when the instrument is derecognised, impaired or reclassified and through the

amortisation process.

Trade and other receivables are classified as financial assets measured at amortised cost. Trade and other payables and

debt instruments are classified as financial liabilities measured at amortised cost.

Financial assets and liabilities measured at fair value through profit or loss

Financial assets and liabilities are measured at fair value unless measured at amortised cost. At initial recognition, an

entity may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value

of an investment in an equity instrument within the scope of NZ IFRS 9 ‘Financial Instruments’ that is not held for trading.

If an entity makes this election, it shall recognise in profit or loss dividends from that investment when the entity’s right

to receive payment of the dividend is established in accordance with NZ IAS 18 ‘Revenue’. An entity may also at initial

recognition, designate an instrument as measured at fair value through profit or loss if doing so eliminates or significantly

reduces a measurement or recognition inconsistency that would otherwise arise from measuring the instruments or

recognising gains and losses on them on different bases.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and

for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent

arm’s length transaction pricing models refined to reflect the Group’s specific circumstances.

A gain or loss on a financial asset or liability that is measured at fair value and is not part of a hedging relationship shall

be recognised in profit and loss unless the financial asset is an investment in an equity instrument and the entity has

made an irrevocable election to present gains and losses on that investment in other comprehensive income.

Financial assets are de-recognised when the rights to receive cash flows from the financial assets have expired or have

been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial liabilities are

de-recognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.

Investment property liabilities are classified as financial liabilities measured at fair value through profit or loss. Derivative

financial instruments are classified as either financial assets or financial liabilities measured at fair value through profit or

loss.

2.14 investments in subsidiaries and associates

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

2.15 intangible assets

(i) Computer software

Separately acquired computer software and licenses at a cost greater than $10,000 are capitalised on the basis of the

costs incurred to acquire and bring to use the specific asset. These costs are amortised on a straight line basis over their

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estimated useful lives of two years.

Costs under $10,000 associated with maintaining computer software programmes are recognised as an expense as

incurred.

(ii) Quota

Separately acquired fishing quota has an indefinite useful life and will generate economic benefits beyond one year.

Fishing quota is tested annually for impairment and is carried at cost less accumulated impairment. The useful life is

assessed annually to determine whether the indefinite useful life assessment continues to be supportable.

(iii) Carbon credits

Intangible assets include carbon credits acquired by way of a Government grant and are initially recognised at fair value

at the date of acquisition. Following initial recognition, these intangible assets are carried at cost less any accumulated

impairment losses.

Carbon credits are not consumed in the production and are therefore not amortised. They are tested for impairment

annually and whenever there is an indication that impairment exists.

2.16 property, plant and equipment

Farm and other properties are comprised of land, buildings and plant held on the farms as well as the building occupied

by the Parent, and are shown at fair value, based on periodic, but at least triennial, valuations by external independent

valuers, less subsequent depreciation. Any accumulated depreciation at the date of revaluation is eliminated against

the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. Land at cost,

hotels, development properties, vehicles, equipment, fixtures and fittings are stated at historical cost less depreciation

and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only

when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item

can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income

during the financial period in which they are incurred.

Increases in the carrying amounts arising on revaluation of farm and other properties are credited to the revaluation

reserve in shareholders’ equity. To the extent that the increase reverses a revaluation decrease previously recognised

in the statement of comprehensive income, the increase is first recognised in statement of comprehensive income.

Decreases that reverse previous increases of the same asset are first charged against revaluation reserves directly in

equity to the extent of the remaining reserve attributable to the asset; all other decreases are charged to the statement of

comprehensive income.

Development property and land is not depreciated. Depreciation on other assets is calculated using the diminishing value

method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows:

- Farm and other properties 2.0% - 11.4%

- Farm plant and equipment 4.8% - 48.0%

- Hotels 1.0% - 50.0%

- Vehicles 12.0% - 31.2%

- Computer, office equipment, furniture and fittings 9.5% - 50.0%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is

greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the

statement of comprehensive income. When revalued assets are sold, it is Group policy to transfer the amounts included

in revaluation reserves in respect of those assets to retained earnings.

6 26 2

2.17 investment property

Investment properties include properties held to earn rental income, and/or for capital appreciation as well as investment

properties under construction. A property is also classified as an investment property if it does not have an operating

lease in place, but is held with the intention of attaining an operating lease.

Investment properties are initially recognised at cost, including transaction costs. Subsequent to initial recognition,

investment properties are carried at fair value, representing open-market value determined annually by external valuers.

Changes in fair value are recorded in the statement of comprehensive income.

Where a property interest is held under an operating lease, and is classified as an investment property, the property

is recognised at the lower of fair value of the property and the present value of the minimum lease payments, with an

equivalent amount being recognised as a liability. Subsequent to initial recognition, the asset and liability are measured at

fair value with changes in fair value recognised in profit or loss.

2.18 impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that

are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the

carrying amount may not be recoverable. An impairment loss is recognised when the asset’s carrying amount exceeds

its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.

Impairment losses are recognised first against the revaluation reserves in respect of the impaired asset, and second as

an expense in the statement of comprehensive income.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash generating unit) is increased to

the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed

the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash

generating unit) in prior years. A reversal of an impairment loss is recognised in the statement of comprehensive income

immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated

as a revaluation increase.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately

identifiable cash flows (cash generating units). Non-financial assets that suffered impairment, with the exception of

fishing quota, are reviewed for possible reversal of the impairment at each reporting date.

2.19 Trade and other payables

Trade payables and other accounts payable are recognised when the Group becomes obliged to make future payments

resulting from the purchase of goods and services. The amounts are unsecured and are usually paid within 30 days

of recognition. Trade and other accounts payable are recognised initially at fair value plus transaction costs and

subsequently measured at amortised cost using the effective interest method.

2.20 interest bearing liabilities

Interest bearing liabilities are initially recognised at fair value, net of transaction costs incurred. Interest bearing liabilities

are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the

redemption amount is recognised in the statement of comprehensive income over the period of the borrowings using the

effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the

liability for at least 12 months after the balance date.

2.21 Contributed equity

Ordinary shares are classified as equity. Transaction costs arising on the issue of equity instruments are recognised

directly in equity as a reduction of the proceeds of the equity instrument. Transaction costs are the costs arising on the

issue of equity instruments, incurred directly in connection with the issue of those equity instruments and which would

not have been incurred had those instruments not been issued.

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2.22 Dividends

Dividend distribution to the Company Shareholder is recognised as a liability in the Company’s and the Group’s

financial statements in the period in which the dividends are approved by the Directors and notified to the Company’s

Shareholder.

Provision is made for the amount of any dividend declared on or before the end of the financial year but not distributed at

balance date.

2.23 Current income tax

The Inland Revenue Department approved the Company as charitable for the purposes of the Income Tax Act 1994.

Accordingly, no income tax is payable. See note 3 for details of entities that have charitable status.

However some subsidiary and associate entities are taxable. In the instances where an entity is taxable, current tax is

calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or loss for

the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting

date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or

refundable).

The Group is not liable for tax on profits or losses from joint ventures as all entities within the Group that are partners of a

joint venture through a joint venture agreement have charitable tax status.

2.24 Statement of cash flows

The statement of cash flows are prepared exclusive of GST. For the purposes of the statement of cash flows, cash and

cash equivalents include cash in banks and investments in money market instruments, net of outstanding bank overdrafts.

Operating activities include all transactions and other events that are not investing or financing activities.

Investing activities are those activities relating to the acquisition and disposal of current and non-current investments and

any other non-current assets.

Financing activities are those activities relating to changes in the equity and debt capital structure of the Company and

Group and those activities relating to the cost of servicing the Company’s and Group’s equity capital.

2.25 goods and services tax (gST)

The profit and loss component of the statement of comprehensive income has been prepared so that all components

are stated exclusive of GST. All items in the statement of financial position are stated net of GST, with the exception of

receivables and payables, which include GST invoiced.

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

Raukura Moana Seafoods Limited Yes Fisheries 100% 100% 31-Mar

Ruakura Fee Simple Limited Yes Property 100% - 31-Mar

Ruakura Limited Yes Property 100% - 31-Mar

Tainui Auckland Airport Hotel LP No Investment 70% 70% 31-Mar

Tainui Auckland Airport Hotel GP Limited No Investment 70% 70% 31-Mar

Tainui Corporation Limited Yes Property 100% 100% 31-Mar

Tainui Development Limited Yes Property 100% 100% 31-Mar

TDL No. 1 Limited Yes Investment 100% 100% 31-Mar

Te Rapa 2002 Limited Yes Property 100% 100% 31-Mar

TGH No. 1 Limited No Investment 100% 100% 31-Mar

The Base Limited Yes Property 100% 100% 31-Mar

6 46 4

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

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

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

Callum Brae Tainui No Property 50% 50% 31-Mar

TAG Forestry Joint Venture No Property 50% 50% 31-Mar

The subsidiaries, interest in associates and joint ventures with reporting dates other than 31 March have been included

based on their actual balances at 31 March 2012 and not the balances at their respective reporting dates. Hamilton

Riverview Hotel Limited has a balance date of 31 December to align with its other shareholders operations.

The country of incorporation for all subsidiaries, associates and joint ventures is New Zealand.

The Group’s interest in the joint ventures had the following effect on the financial statements: Consolidated

2012 2011 $’000 $’000

Statement of financial position

Current assets 2,442 3,599

Non-current assets 210 4,195

Total assets 2,652 7,794

Current liabilities 245 567

Net assets 2,407 7,227

Statement of comprehensive income

Revenues 2,413 3,550

Expenses (1,252) (2,005)

Profit before income tax 1,161 1,545

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

Rental income 31,441 24,556 2,642 2,580

Hotel income 14,397 - - -

Sale of sections 2,409 3,522 - -

Other income 2,144 1,401 2,505 634

Quota leasing income 1,745 1,814 - -

Dairy income 1,056 1,048 1,056 1,048

Dividends from listed investments 918 1,586 918 1,586

Other operating gains 13 693 728 693 728

54,803 34,655 7,814 6,576

NOTeS TO The FiNaNCiaL STaTemeNTS CONTiNueDNote 3 continued

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

Audit fees paid to Parent and Group auditors 75 71 23 28

Audit related fees 26 - - -

Audit fees paid to other auditors 16 - - -

Bad debt written off 14 - - -

Consultancy fees 592 1,252 450 675

Cost of sales 6,893 2,155 639 645

Depreciation and amortisation expense 2,541 443 489 376

Direct costs from rental income 1,442 3,375 449 265

Direct costs from investment properties (non-income generating) 425 51 3 12

Directors fees 280 228 280 228

Doubtful debt provision 12 22 1 -

Employee benefits 7,603 3,450 3,191 2,095

Operating lease expenses 52 61 45 38

Other expenses 2,090 1,212 168 4

22,061 12,320 5,738 4,366

Depreciation

Amortisation of intangibles 16 220 101 211 101

Computer, office equipment, furniture and fittings 17 283 116 87 51

Farm and other properties 17 167 197 167 195

Hotel 17 1,847 - - -

Motor vehicles 17 24 29 24 29

Total depreciation and amortisation 2,541 443 489 376

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

Investments in associates 13,485 13,151 - -

Carrying value of associates

Carrying value at beginning of year 13,151 13,012 - -

Share of net profit of associates 541 139 - -

Dividend received (207) - - -

Carrying value at end of year 13,485 13,151 - -

The carrying value is comprised of:

Cost 6,000 6,000 - -

Share of associate revaluation reserves 7,222 7,222 - -

Share of associate post acquisition retained earnings 263 (71) - -

13,485 13,151 - -

6 66 6

7 income tax

The taxable members of the Group have sufficient losses to carry forward to meet any potential income tax liability. The

taxable losses are not recorded in the financial statements due to the lack of probability that the losses will be recovered.

The approximate unrecognised tax losses carried forward are $0.9m (2011: $0.9m).

As at reporting date there is no current tax expense, tax payable or tax receivable (2011: nil).

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

Biological assets - fair value gains unrealised 13 497 789 - -

Financial liabilities designated at fair value through profit or loss - increase in investment property liability 21 (4,313) (2,572) (4,313) (2,572)

Intangible asset settlement 16 - 105 - 93

Interest rate swaps - fair value losses unrealised 21 (3,973) (4,140) (2,927) (4,140)

Investment properties - fair value gains unrealised 18 23,624 8,571 9,255 4,268

Investment properties - loss on sale - (393) - -

Property, plant & equipment - impairment of land at cost 17 (1,400) (950) - -

Shares in listed companies - fair value gains realised 4,050 - 4,050 -

Shares in listed companies - fair value gains unrealised - 6,750 - 6,750

Shares in unlisted companies - fair value losses realised (53) - (53) -

Shares in unlisted companies - fair value gains unrealised 673 - 763 -

19,105 8,160 6,775 4,399

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

Share capital

Ordinary shares

Balance at beginning of year 60,000,000 60,000,000 60,000 60,000

Balance at end of year 60,000,000 60,000,000 60,000 60,000

All ordinary shares rank equally and have a par value of nil and a nominal value of $1 per share.

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

(a) Reserves

Farm and other properties 11,151 8,279 11,151 8,279

Associates 7,222 7,222 - -

18,373 15,501 11,151 8,279

Farm and other properties

Balance at beginning of year 8,279 10,968 8,279 10,968

Revaluation gain/(loss) during the year 17 2,872 (2,689) 2,872 (2,689)

Balance at end of year 11,151 8,279 11,151 8,279

NOTeS TO The FiNaNCiaL STaTemeNTS CONTiNueD

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

Associates

Balance at beginning of year 6 7,222 7,222 - -

Balance at end of year 7,222 7,222 - -

(b) Retained earnings

Movements in retained earnings were as follows: Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Balance at beginning of year 247,217 235,058 10,060 21,990

Net profit/(loss) for the year 39,372 22,659 (2,752) (1,430)

Dividend 14 - (10,500) - (10,500)

Balance at end of year 286,589 247,217 7,308 10,060

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

Trade receivables 1,832 1,680 477 421

Property settlements 562 2,781 - -

Less provision for impairment (68) (56) (1) -

Trade receivables from related parties 14 158 377 150 377

Prepayments 1,770 454 555 141

GST - 3,955 15 3

Other receivables - 126 - -

4,254 9,317 1,196 942

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

Land - sections for sale 4,159 4,617 - -

Other inventories at cost - food and beverage 43 - - -

4,202 4,617 - -

The Bank of New Zealand currently holds a registered first mortgage over property situated at Huntington/Gordonton

Road, Hamilton. This property is part of the Callum Brae Tainui joint venture.

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

Current

Balance at beginning of year 843 615 843 615

Additions 160 114 160 114

Changes in fair value 4 693 728 693 728

Decreases due to sales (614) (614) (614) (614)

Balance at end of year 1,082 843 1,082 843

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

Non-current

Balance at beginning of year 2,694 1,905 - -

Changes in fair value 8 497 789 - -

Balance at end of year 3,191 2,694 - -

The current biological assets represent livestock consisting of mixed age sheep, cattle and cows, which are held for

dairy and dry stock farming. N Lyons and C Heggie from PGG Wrightson determined the fair value of sheep, cattle and

cows at 31 March 2012 (2011: N Lyons and C Heggie from PGG Wrightson). Both valuers provided valuations based on

reference to market evidence of current market prices less point-of-sale costs. At balance date there were 2,864 sheep,

428 cattle and 161 cows (2011: 2,729 sheep, 407 cattle and 99 cows).

The non-current biological assets are comprised of a 374 hectare Pinus Radiata forest planted in 1996 and 1997 and 151

hectares Pinus Radiata forest planted in 2001 and 2002. It is expected that the rotation age for the forest crop will be 27 to

28 years, at which time the crop will be harvested. R H Webster NZIF Registered Valuer valued 374 hectares of the forest

crop as at 31 March 2012 (2011: 374 hectares) using the Crop Expectation Value method at a 7.0% post-tax discount rate

to determine fair value, less point-of-sale costs. R H Webster also valued 270 hectares of Californian Coast Redwoods

planted from 2005 to 2007 as at 31 March 2012 (2011: nil) using current replacement cost method used for young trees

at a 7.0% compounded rate. Alan Bell NZIF Registered Valuer valued 151 hectares of the forest crop as at 31 March 2012

(2011: 151 hectares) using the discounted future value method at a 10% pre-tax discount rate to determine fair value, less

point-of-sale costs. The non-current biological assets are held for investment.

All valuers are independent registered valuers not related to the Company or Group. All valuers hold recognised and

relevant professional qualifications and have recent experience in the categories of biological assets they have valued.

14 Related party transactions

Amounts outstanding with related parties are:

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

Advances owing by subsidiaries and related parties:

Tainui Auckland Airport Hotel LP - - 20,860 21,700

Tainui Development Limited - - 42,536 42,775

Te Rapa 2002 Limited - - 37,155 35,688

The Base Limited - - 145,340 117,225

Waikato Raupatu Lands Trust 8,400 - 8,400 -

Waikato Raupatu River Trust 23 - 23 -

Waikato-Tainui Distributions Limited 25 - 25 -

8,448 - 254,339 217,388

Advances owing to Shareholder, subsidiaries and related parties:

Raukura Moana Seafoods Limited - - 6,306 4,965

Tainui Corporation Limited - - 45,897 37,435

TGH No. 1 Limited - - 5,780 5,780

Waikato Raupatu Lands Trust 74,027 74,027 49,162 49,162

Waikato-Tainui Fisheries Limited 913 414 913 414

74,940 74,441 108,058 97,756

NOTeS TO The FiNaNCiaL STaTemeNTS CONTiNueDNote 13 continued

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

Trade and other receivables owing by Shareholder:

Waikato Raupatu Lands Trust 11 158 377 150 377

158 377 150 377

Trade and other payables owing to Shareholder:

Waikato Raupatu Lands Trust 19 - 2,722 - 2,722

- 2,722 - 2,722

The Company’s Shareholder, Waikato-Tainui Te kauhanganui Incorporated is the Trustee of the Waikato Raupatu Lands

Trust (the ‘Trust’). The Trust is the ultimate parent entity of the Group. All members of the Group are considered to be

related parties of the Trust.

Transactions between related entities include loans and advances to and from the Shareholder, certain subsidiaries and

associates.

All amounts owing by and to the Company and Group and ultimate Parent are repayable on demand and are interest

free. There is no impairment of any related party balances. The amount owing by the ultimate Parent to the Group is

subordinated to the Westpac and BNZ bank loans (see note 20).

The Company charged its subsidiaries and Shareholder $1.9m (2011: $1.6m) for administration services and financial

charges. There were no purchases of goods or services from the Group’s subsidiaries.

The Company did not declare a dividend for the year ended 31 March 2012 (2011: $10.5m or $0.175 per share) to the

Shareholder, Waikato-Tainui Te kauhanganui Incorporated, however a dividend of $10.1m was declared on 22 June 2012

(see note 27).

The advance account movement between the Company and its subsidiaries represents cash received and payments

made by the Company on behalf of its subsidiaries.

There are operating leases in place between the Shareholder and the Company for land owned by the Shareholder

where the Group has developed and leased properties at The Base and the University of Waikato respectively. The

interest held under the operating lease has been accounted for as an investment property and financial liability (see

notes 18 and note 21 respectively).

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

At fair value through profit or loss:

Listed companies - 53,325 - 53,325

Unlisted companies 5,385 4,082 5,294 3,901

5,385 57,407 5,294 57,226

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

16 intangible assetsConsolidated Software Quota NZ Units ETS Total $’000 $’000 $’000 $’000

Balance at 31 March 2010 279 20,340 - 20,619

Additions 49 - 105 154

Amortisation (101) - - (101)

Balance at 31 March 2011 227 20,340 105 20,672

7 07 0

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

Total intangible assets at 31 March 2011

Cost 413 20,340 105 20,858

Accumulated amortisation and impairment (186) - - (186)

Net book value 227 20,340 105 20,672

Balance at 31 March 2011 227 20,340 105 20,672

Additions 36 - - 36

Amortisation and impairment (146) - (74) (220)

Balance at 31 March 2012 117 20,340 31 20,488

Total intangible assets at 31 March 2012

Cost 448 20,340 105 20,893

Accumulated amortisation and impairment (331) - (74) (405)

Net book value 117 20,340 31 20,488

Parent

Balance 31 March 2010

Opening net book amount 275 14,492 - 14,767

Additions 33 - 93 126

Amortisation and impairment (101) - - (101)

Balance 31 March 2011 207 14,492 93 14,792

Total intangible assets at 31 March 2011

Cost 391 14,492 93 14,976

Accumulated amortisation and impairment (184) - - (184)

Net book amount 207 14,492 93 14,792

Balance 31 March 2011 207 14,492 93 14,792

Additions 36 - - 36

Amortisation and impairment (146) - (65) (211)

Balance 31 March 2012 97 14,492 28 14,617

Total intangible assets at 31 March 2012

Cost 428 14,492 93 15,013

Accumulated amortisation and impairment (331) - (65) (396)

Net book value 97 14,492 28 14,617

The Group is deemed a participant in the New Zealand Emission Trading Scheme (ETS) as it is an owner of fishing quota.

The carbon credits are not consumed in the production and the Group is able to either hold the New Zealand Units (NZU)

within the carbon register or alternatively trade the NZU’s in domestic and international carbon markets. The NZU’s are

not amortised but are tested for impairment on an annual basis or when indications of impairment exist. NZU’s relate

to 3,701 (Parent) and 490 (Group) units that were allocated by the Ministry for the Environment as part of the fisheries

allocation for quota owned. The units were valued at $7.50 per unit (2011: $25.00) resulting in an impairment charge to

the Group of $73,342 (2011: nil) and Parent of $64,768 (2011: nil).

NOTeS TO The FiNaNCiaL STaTemeNTS CONTiNueDNote 16 continued

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

year ended 31 March 2011

Opening net book value 21,694 6,313 5,590 - 120 280 33,997

Additions 70 45,683 - - - 647 46,400

Disposals - - - - - (5) (5)

Net revaluation decrements 10 (2,689) - - - - - (2,689)

Depreciation charge 5 (197) - - - (29) (116) (342)

Impairment of land at cost 8 - - (950) - - - (950)

Closing net book value 18,878 51,996 4,640 - 91 806 76,411

At 31 March 2011

Cost 19,917 51,996 4,640 - 227 1,213 77,993

Accumulated depreciation (1,039) - - - (136) (407) (1,582)

Closing net book value 18,878 51,996 4,640 - 91 806 76,411

year ended 31 March 2012

Opening net book value 18,878 51,996 4,640 - 91 806 76,411

Additions 205 7,436 - - 19 321 7,981

Disposals (1) - - - (7) - (8)

Net revaluation 10 2,872 - - - - - 2,872

Depreciation charge 5 (167) - - (1,847) (24) (283) (2,321)

Transfer from investment properties 18 - 1,360 - - - - 1,360

Impairment of land at cost 8 - - (1,400) - - - (1,400)

Reclassification - (59,170) - 59,170 - - -

Closing net book value 21,787 1,622 3,240 57,323 79 844 84,895

7 27 2

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

At 31 March 2012

Cost 22,993 1,622 3,240 59,170 227 1,473 88,725

Accumulated depreciation (1,206) - - (1,847) (148) (629) (3,830)

Closing net book value 21,787 1,622 3,240 57,323 79 844 84,895

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

year ended 31 March 2011

Opening net book value 20,063 120 128 20,311

Additions 77 - 74 151

Disposals - - (5) (5)

Net revaluation decrements 10 (2,689) - - (2,689)

Depreciation charge 5 (195) (29) (51) (275)

Closing net book value 17,256 91 146 17,493

At 31 March 2011

Cost 18,278 226 430 18,934

Accumulated depreciation (1,022) (135) (284) (1,441)

Closing net book value 17,256 91 146 17,493

year ended 31 March 2012

Opening net book value 17,256 91 146 17,493

Additions 182 19 86 287

Disposals (1) (7) (1) (9)

Net revaluation 10 2,872 - - 2,872

Depreciation charge 5 (167) (24) (87) (278)

Closing net book value 20,142 79 144 20,365

At 31 March 2012

Cost 21,330 226 464 22,020

Accumulated depreciation (1,188) (147) (320) (1,655)

Closing net book value 20,142 79 144 20,365

Development properties

Development properties relating to the development of the Novotel Auckland Airport hotel, which was completed in May

2011, has been transferred to a separate hotel category within property, plant and equipment (see also note 20 for ASB

Bank security agreement over the hotel assets). The transfer to development properties relates to a property previously

classified as investment property. The property will be developed as the Company’s new offices, therefore owner

occupied, and as such the property has been reclassified to property, plant and equipment.

NOTeS TO The FiNaNCiaL STaTemeNTS CONTiNueDNote 17 continued

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Valuations of farm and other properties

Telfer Young (Waikato) Limited and Curnow Tizard were contracted as independent valuers to value farm and other

properties. Fair value has been assessed as the amount for which an asset could be exchanged or a liability settled

between knowledgeable willing parties in an arms length transaction.

The significant methods and assumptions applied in estimating the fair value were:

- the direct comparison approach (based on analysis of sales of vacant property. This analysis includes determination

of land value, other improvements and residual value for principal improvements);

- the traditional capitalisation approach (focusing on the net maintainable income and the level of investment return);

- the discounted cash flow approach (based on establishing a cash flow budget for the property having particular

regard to the length of lease term and nature of the leasehold interest and the following factors; discount rate, land

inflation and rental rates); and

- comparing market evidence of transaction prices for similar properties.

The total value of farm properties valued by Telfer Young (Waikato) Limited at 31 March 2012 is $20.1m (2011: $17.2m).

The carrying amount that would have been reported for farm properties under the historical cost method is $9.2m (2011:

$9.0m).

The total value of other properties by Curnow Tizard Limited at 31 March 2012 is $1.7m (2011: $1.6m). The carrying

amount that would have been reported for other properties under the historical cost method is $0.9m (2011: $1.2m).

All valuers are independent registered valuers not related to the Company or Group. All valuers hold recognised and

relevant professional qualifications and have recent experience in the locations and categories of farm and other

properties they have valued.

18 investment properties Consolidated Parent

2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Balance at beginning of year 457,728 385,061 71,778 67,510

Development 48,420 67,846 - -

Net gain from fair value adjustment 8 23,624 8,571 9,255 4,268

Transfer to property, plant and equipment 17 (1,360) - - -

Disposals - (3,750) - -

Balance at end of year 528,412 457,728 81,033 71,778

Valuation basis of investment properties

Investment property valuations were completed as follows:

D.J. Saunders from Telfer Young (Waikato) Limited valued properties at fair value of $131m and parent $24m on 31 March

2012 (31 March 2011: $122m and Parent: $22m) using a mixture of market evidence of transaction prices for similar

properties, direct comparison, capitalisation and discounted cash flow approaches.

T. Arnott from CB Richard Ellis Limited valued properties at fair value of $282m and parent $57m on 31 March 2012 (31

March 2011: $114m and Parent: $50m) using a mixture of market evidence of transaction prices for similar properties,

capitalisation and discounted cash flow approaches.

M. J. Snelgrove from Curnow Tizard Limited valued properties at fair value of $107m on 31 March 2012 (31 March 2011:

$104m) using a mixture of market evidence of transaction prices for similar properties, direct comparison, capitalisation

and discounted cash flow approaches.

R. H. Martin from Property Valuations Limited valued properties at fair value of $1m on 31 March 2012 (31 March 2011: $2m)

using a mixture of market evidence of transaction prices for similar properties and the direct comparison approaches.

7 47 4

R. Peters from Seagar & Partners valued properties at fair value of $2m on 31 March 2012 (31 March 2011: $2m) using a

mixture of market evidence of transaction prices for similar properties and the direct comparison approaches.

Property under construction valuations were completed as follows:

T. Arnott from CB Richard Ellis Limited valued properties at fair value of nil on 31 March 2012 (2011: $112m) using

a mixture of market evidence of transaction prices for similar properties, capitalisation and discounted cash flow

approaches. The carrying amount that would have been reported for properties under construction under the historical

cost method is nil (2011: $112m).

All valuers are independent registered valuers not related to the Company or Group. All valuers hold recognised

and relevant professional qualifications and have recent experience in the locations and categories of the investment

property they have valued.

The Group also incurred work in progress as at 31 March 2012 of $6m (2011: $2m) in relation to the property located at

The Base, Parent nil (2011: nil).

19 Trade and other payables Consolidated Parent

2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Trade payables 2,092 5,787 1,284 78

Dividend payable to related parties 14 - 2,700 - 2,700

Related party payables 14 - 22 - 22

Accrued expenses 8,135 11,402 1,850 2,158

Employee entitlements 468 253 272 161

GST 346 - - -

Other payables 40 61 40 61

11,081 20,225 3,446 5,180

20 interest bearing liabilities Consolidated Parent

2012 2011 2012 2011Secured $’000 $’000 $’000 $’000

Bank loans 30,300 72,000 30,300 72,000

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

Bank loans 149,852 114,650 121,667 97,400

Total non-current interest bearing liabilities 149,852 114,650 121,667 97,400

Total interest bearing liabilities 180,152 186,650 151,967 169,400

The Company holds a multi option credit line facility agreement with Westpac New Zealand Limited for $75m (2011:

$50m) of which $50m matures on 15 March 2014 and $25m matures on 25 July 2015. Borrowings of $26m of the available

facility had been drawn at balance date (2011: $23m).

The Company holds a Wholesale Term Loan Facility with Westpac New Zealand Limited for $50m (2011: $22m) which

matures on 27 July 2015. Borrowings of $50m had been drawn at balance date (2011: $22m).

The Company holds a Committed Cash Advances Facility Tranche A Agreement with the Bank of New Zealand for $75m

(2011: $50m) which matured on 31 July 2016. Borrowings of $46m of this facility had been drawn at balance date (2011:

$50m).

The Company holds a Committed Cash Advances Facility Tranche B Agreement with the Bank of New Zealand for $50m

(2011: $50m) which matures on 22 November 2012. Borrowings of $30m of the available facility had been drawn at

balance date (2011: $35m).

NOTeS TO The FiNaNCiaL STaTemeNTS CONTiNueDNote 18 continued

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Tainui Auckland Airport Hotel holds a Committed Cash Advance Facility with ASB Bank Limited for $33m (2011: $33m)

which matures 14 May 2014. Borrowings of $28m of the available facility had been drawn at balance date (2011: $17m).

The ASB Bank has a first and exclusive security agreement over the assets and undertakings of Tainui Auckland Airport

Hotel LP and Tainui Auckland Airport Hotel GP Limited.

The Company and guaranteeing subsidiaries (Tainui Corporation Limited, Tainui Development Limited, TGH No.1

Limited, Raukura Moana Seafoods Limited, The Base Limited and Te Rapa 2002 Limited) have granted to Westpac New

Zealand Limited and Bank of New Zealand a charge in and over all present and future assets and present and future

rights and interest in any asset as security for the finance facilities.

21 Other financial liabilities Consolidated Parent

2012 2011 2012 2011At fair value through profit or loss $’000 $’000 $’000 $’000

Interest rate swaps 11,763 7,790 10,717 7,790

Investment property liability 28,280 23,967 28,280 23,967

40,043 31,757 38,997 31,757

The notional amount of interest rate swaps is $150m (Parent: $135m) with maturity dates that range from 1-10 years

(Parent: 1-9 years), (2011: $139m for Parent and Group, maturing between 1-10 years).

The Base and University of Waikato land is owned by the Shareholder. There is an operating lease in place between the

Shareholder and the Group. The interest held under the operating lease has been accounted for as a financial liability

and investment property (see note 14 and note 18).

22 Reconciliation of profit for the year to net cash inflow/(outflow) from operating activities Consolidated Parent

2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Net profit/(loss) for the year 39,353 22,659 (2,752) (1,430)

Non-cash items:

Depreciation and amortisation 5 2,541 443 489 376

Bad debts written off 5 14 - - -

Movement in doubtful debt provision 5 12 22 1 -

Loss on sale of investment properties 8 - 393 - -

Gain on revaluation of biological assets 8, 13 (1,190) (1,517) (693) (728)

Gain on shares in listed companies 8, 15 (4,050) (6,750) (4,050) (6,750)

Loss on shares in unlisted companies 8, 15 53 - 53 -

Gain on shares in unlisted companies 8, 15 (673) - (763) -

Loss on interest rate swaps 8, 21 3,973 4,140 2,927 4,140

Movement in investment property liability 8, 21 4,313 2,572 4,313 2,572

Share of total profits of associates 6 (334) (139) - -

Gain on revaluation of investment properties 8, 18 (23,624) (8,571) (9,255) (4,268)

Impairment of land at cost 8 1,400 950 - -

Other non-cash items in relation to investing and financing activities 3,386 577 2,883 (993)

(Increase)/decrease in current assets: Trade and other receivables 5,063 (4,329) 254 3 Inventories 415 (1,109) - - Biological assets (239) (228) (239) (228)

Increase/(decrease) in current liabilities: Trade and other payables (9,144) 5,317 (1,734) 650

Net cash inflow/(outflow) from operating activities 21,269 14,430 (8,566) (6,656)

7 67 6

23 Financial risk management

23.1 Financial risk factors

Exposure to credit, liquidity and market (currency, interest and price) risks arise in the normal course of the Group’s

business. The Company and Group have various financial instruments with off-balance sheet risk.

Senior management are required to identify and report major risks affecting the business and develop strategies to

mitigate these risks. The board reviews and approves overall risk management strategies covering specific areas.

(a) Credit risk

Credit risk is the risk that a third party will default on its obligations to the Parent or Group, causing the Parent or Group

to incur a loss. The Parent and Group do not have any significant concentrations of credit risk. The maximum exposure to

credit risk at reporting date is the carrying amount of the financial assets as shown in the statement of financial position.

The Group does not require any collateral or security to support financial instruments as it only deposits with, or lends to,

banks and other financial institutions with high credit ratings except for funds lent to a related party and an external entity

for which the Group has appropriate security and guarantees. The Group further minimises credit exposure by limiting

the amount of surplus funds placed with any one financial institution. The Group does not expect non-performance of

any obligations at balance date. There are no material financial assets held by the Company and Group at balance date

which are past due but not impaired.

(b) Market risk

(i) Currency

The Group has no exposure to currency risk at balance date.

There are no notional principal or forward foreign exchange contracts at 31 March 2012 (2011: nil).

(ii) Interest rate risk

The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to

cash flow interest rate risk. Borrowings issued at fixed rate expose the Group to fair value interest rate risk.

The Company and Group adopt a policy of ensuring that between 25 and 90 per cent of its exposure to changes in

interest rates on borrowings is on a fixed rate basis.

The Group manages its cash flow interest rate risk by using floating to fixed interest rate swaps. Such interest rate swaps

have the economic effect of converting borrowings from floating rates to fixed rates.

Under interest rate swap contracts, the Group agrees to exchange the difference between fixed contract and floating rate

interest amounts calculated by reference to the agreed notional principal amounts. Such contracts enable the Group to

mitigate the risk of changing interest rates on the fair value of issued fixed rate debt held and the cash flow exposures

on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by

discounting the future cash flows at reporting date and the credit risk inherent in the contract, and are disclosed below.

The average interest rate is based on the outstanding balances at the start of the financial year.

(iii) Price risk

The Group and the Parent entity are exposed to equity securities price risk. This arises from investments held by the

Group and Parent that are classified at fair value through profit or loss. Neither the Group nor the Parent entity are

exposed to commodity price risk.

(c) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty raising liquid funds to meet commitments as they fall due.

The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by

continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

NOTeS TO The FiNaNCiaL STaTemeNTS CONTiNueD

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(d) Financial risk management strategies relating to agricultural activities

The Group undertakes agricultural activities through its farm operations and forestry land. These operations are exposed

to business risks, including the volatility of revenue and valuation of its assets.

The Group utilises the skills of appropriately qualified and experienced farm consultants, farm managers and

sharemilkers to mitigate the financial risk relating to farming activities.

The Group utilises the skills of appropriately qualified and experienced forestry consultants and forestry contractors to

mitigate the financial risk relating to forestry activities.

(e) Fair value estimation

The fair value of financial instruments traded in active markets is based on quoted market prices at balance date. The

quoted market price used for financial assets held by the Group is the current bid price.

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their

fair values due to their short term nature. The fair value of financial liabilities for disclosure purposes is estimated by

discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar

financial instruments.

(f) Financial instruments by category Assets at fair value Assets at through profit amortised or loss cost TotalFinancial assets as per statement of financial position $’000 $’000 $’000

Consolidated

At 31 March 2012

Financial assets 5,385 - 5,385

Trade and other receivables - 2,484 2,484

Cash and cash equivalents - 6,257 6,257

5,385 8,741 14,126

At 31 March 2011

Financial assets 57,407 - 57,407

Trade and other receivables - 4,908 4,908

Cash and cash equivalents - 2,251 2,251

57,407 7,159 64,566

Parent

At 31 March 2012

Advances - 254,339 254,339

Financial assets 5,294 - 5,294

Trade and other receivables - 626 626

Cash and cash equivalents - 2,054 2,054

5,294 257,019 262,313

At 31 March 2011

Advances - 217,388 217,388

Financial assets 57,226 - 57,226

Trade and other receivables - 798 798

Cash and cash equivalents - 1,023 1,023

57,226 219,209 276,435

7 87 8

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

Consolidated

At 31 March 2012

Borrowings - 180,152 180,152

Financial liabilities 40,043 - 40,043

Trade and other payables - 10,735 10,735

Advances - 74,940 74,940

40,043 265,827 305,870

At 31 March 2011

Borrowings - 186,650 186,650

Financial liabilities 31,757 - 31,757

Trade and other payables - 20,225 20,225

Advances - 74,441 74,441

31,757 281,316 313,073

Parent

At 31 March 2012

Borrowings - 151,967 151,967

Financial liabilities 38,997 - 38,997

Trade and other payables - 3,446 3,446

Advances - 108,058 108,058

38,997 263,471 302,468

At 31 March 2011

Borrowings - 169,400 169,400

Financial liabilities 31,757 - 31,757

Trade and other payables - 5,180 5,180

Advances - 97,756 97,756

31,757 272,336 304,093

23.2 Capital risk management

The Group’s capital is its equity plus debt, which is comprised of contributed capital, retained earnings and other

reserves. Equity is represented by net assets. The Group manages its revenues, expenses, assets and liabilities,

investments and general financial dealings prudently. The Group’s equity is largely managed as a by-product of

managing revenues, expenses, assets, liabilities, investments and general financial dealings. The objective of managing

the Group’s equity is to ensure the Group effectively achieves its objectives and purpose, whilst remaining a going

concern in order to provide returns for the Shareholder and to maintain an optimal capital structure to reduce the

cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend paid

to the Shareholder, return capital to the Shareholder, issue new shares or sell assets to reduce debt. The Group has

not breached any bank covenants as required by the Bank of New Zealand and Westpac New Zealand Ltd during the

reporting period (2011: no breach). There are no externally imposed capital requirements at balance date (2011: nil).

NOTeS TO The FiNaNCiaL STaTemeNTS CONTiNueDNote 23.1 continued

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

Total borrowings 20 180,152 186,650 151,967 169,400

Less: cash and cash equivalents (6,257) (2,251) (2,054) (1,023)

Net debt 173,895 184,399 149,913 168,377

Total equity 373,883 332,018 78,459 78,339

Total capital 547,778 516,417 228,372 246,716

Gearing ratio 32% 36% 66% 68%

24 Leases

(a) Group and Company as lessee

Commitments for minimum lease payments/receipts in relation to non-cancellable operating leases are payable/

receivable as follows: Consolidated Parent

2012 2011 2012 2011 $’000 $’000 $’000 $’000

Within one year 91 46 29 36

Later than one year but not later than five years 81 38 23 29

Later than five years 122 32 1 28

294 116 53 93

There are no options to purchase attached to any lease agreements.

The operating leases that exist between the Shareholder and the Company for land owned by the Shareholder at The

Base and the University of Waikato are rent free until the first rent review date which is in 2019 and 2022 respectively.

(b) Group and Company as lessor

The lease amounts due from leasees are as follows: Consolidated Parent

2012 2011 2012 2011 $’000 $’000 $’000 $’000

Within one year 31,518 30,204 2,000 2,000

Later than one year and not later than five years 104,238 108,306 8,000 8,000

Later than five years 139,239 149,847 58,942 60,948

274,995 288,357 68,942 70,948

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

purchase attached to any lease agreements.

25 Contingent liabilities and gains

The Parent and Group had contingent liabilities at 31 March 2012 in respect of:

The Shareholder has first priority security of $15m over the present and future undertakings, property, assets, revenues

and capital of Raukura Moana Seafoods Limited, Tainui Corporation Limited, Tainui Development Limited and Tainui

Group Holdings Limited. Each company jointly and severally, unconditionally and irrevocably guarantees to the

Shareholder all secured monies.

The Directors believe that the expectation of a liability arising due to the guarantees and mortgages in place is remote.

8 08 0

26 Capital commitments

Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: Consolidated Parent

2012 2011 2012 2011 $’000 $’000 $’000 $’000

Property, plant and equipment 5,895 42,150 1,440 2,104

Proportionate interest in joint venture commitments - 588 - -

Share of associates’ commitments - 497 - -

5,895 43,235 1,440 2,104

27 events subsequent to the reporting period

The Company declared a dividend of $10.1m on 22 June 2012.

NOTeS TO The FiNaNCiaL STaTemeNTS CONTiNueD

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Tainui Group Holdings Annual Report 2012

Report on the Financial Statements

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

Directors’ Responsibility for the Financial Statements

The Directors are responsible for the preparation of these financial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Company and Group’s preparation of financial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

We have no relationship with, or interests in, Tainui Group Holdings Limited or any of its subsidiaries other than in our capacity as auditors and providers of other assurance services. These services have not impaired our independence as auditors of the Company and the Group.

Opinion

In our opinion, the financial statements on pages 51 to 80:

(i) comply with generally accepted accounting practice in New Zealand;

(ii) give a true and fair view of the financial position of the Company and the Group as at 31 March 2012, and their financial performance and cash flows for the year then ended.

Report on Other Legal and Regulatory Requirements

We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our audit of the financial statements for the year ended 31 March 2012:

(i) we have obtained all the information and explanations that we have required; and

(ii) in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records.

Restriction on Distribution or Use

This report is made solely to the Company’s shareholder, as a body, in accordance with Section 205(1) of the Companies Act 1993. Our audit work has been undertaken so that we might state to the Company’s shareholder those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholder, as a body, for our audit work, for this report or for the opinions we have formed.

inDePenDent auDitOrs’ rePOrtTO The ShaRehOLDeR OF TaiNui gROup hOLDiNgS LimiTeD

Chartered Accountants

Auckland

22 June 2012

8 2

Date of establishment 31 March 2008

Objectives Waikato-Tainui Fisheries Limited is established to:

Receive, hold and manage, for so long as they are to be retained, the income shares of Aotearoa

Fisheries Limited.

Shareholder Waikato-Tainui Te kauhanganui Incorporated

Board of Directors John Spencer (Chairman)

Michael Allen

Rahui Papa

Rukumoana Schaafhausen

Hon. koro Wetere

Chief executive Officer Mike Pohio

Solicitors Bell Gully

McCaw Lewis

Registered office 4 Bryce Street, Hamilton 3204

postal address P O Box 19295, Hamilton 3244

Telephone +64 7 834 4880

Facsimile +64 7 834 4881

waikatO-tainui fisheries limiteDDiReCTORyfor the year ended 31 March 2012

8 3These financial statements should be read in conjunction with the accompanying notes.

Tainui Group Holdings Annual Report 2012

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2012 2011 $’000 $’000

Revenue 499 414

Net operating profit for the year 499 414

Fair value gains/(losses) - -

Net profit for the year 499 414

Other comprehensive income for the year

Other comprehensive income for the year - -

Total comprehensive income for the year 499 414

waikatO-tainui fisheries limiteDSTaTemeNT OF COmpReheNSive iNCOme (unaudited)for the year ended 31 March 2012

Mike Allen, Director 22 June 2012

John Spencer, Chairman 22 June 2012

Note 2012 2011 $’000 $’000

EQUITy

Contributed equity 3 - -

Retained earnings 4 13,848 13,349

Total equity 13,848 13,349

ASSETS

Current assets

Advances 6 913 414

Non-current assets

Other financial assets 5 12,935 12,935

Total assets 13,848 13,349

Total net assets 13,848 13,349

waikatO-tainui fisheries limiteDSTaTemeNT OF FiNaNCiaL pOSiTiON (unaudited)as at 31 March 2012

8 4 These financial statements should be read in conjunction with the accompanying notes.

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

Balance as at 1 April 2010 - 12,935 12,935

Comprehesive income

Net profit for the year - 414 414

Other comprehensive income for the year - 414 414

Balance as at 31 March 2011 - 13,349 13,349

Comprehesive income

Net profit for the year - 499 499

Total comprehensive income for the year - 499 499

Balance as at 31 March 2012 - 13,848 13,848

waikatO-tainui fisheries limiteDSTaTemeNT OF ChaNgeS iN equiTy (unaudited)for the year ended 31 March 2012

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Tainui Group Holdings Annual Report 2012

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Tainui Group Holdings Annual Report 2012

1 general information

Waikato-Tainui Fisheries Limited’s (the ‘Company’) principal activity is to receive, hold and manage, for so long as they

are to be retained, the income shares of Aotearoa Fisheries Limited (AFL), as that term is defined in the Maori Fisheries

Act 2004, allocated by Te Ohu kai Moana Trustee Limited to, or otherwise acquired by the Company.

The Company is a limited liability company incorporated and domiciled in New Zealand.

The financial statements were authorised for issue by the Board of Directors on the 22nd of June 2012.

2 Summary of significant accounting policies

The financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New

Zealand (‘NZ GAAP’). They comply with the New Zealand equivalents to International Financial Reporting Standards (‘NZ

IFRS’) and other applicable financial reporting standards as appropriate for the profit-oriented entities that qualify for

and apply differential reporting concessions.

The principal accounting policies applied in preparation of these financial statements are set out below. These policies

have been consistently applied for all years presented, unless otherwise stated.

2.1 Basis of preparation

Entities reporting

The financial statements are for the Company as a separate legal entity.

The Company is designated as profit-oriented for financial reporting purposes.

Statutory base

Waikato-Tainui Fisheries Limited is a company registered under the Companies Act 1993. The financial statements have

been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Companies Act 1993.

Historical cost convention

The financial statements have been prepared under the historical cost convention, as modified by the revaluation of other

financial assets at fair value through the profit or loss which are carried at fair value.

Differential reporting

The Company is a qualifying entity within the Framework for Differential Reporting. The Company qualifies on the basis

that it is not publicly accountable and there is no separation between the owner and governing body.

The Company has taken advantage of all differential reporting exemptions except for NZ IAS 18 – Revenue, for which it

has fully complied.

2.2 Critical accounting estimates and judgments

The preparation of financial statements in conformity with NZ IFRS requires the use of certain critical accounting

estimates.

It also requires management to exercise its judgement in the process of applying the Company’s accounting policies.

The estimates and judgements are reviewed by management on an ongoing basis. Revisions to accounting estimates are

recognised in the period in which the estimate is revised.

The following are the critical estimates and judgements management has made in the process of applying the

Company’s accounting policies and that have the most significant impact on the amounts recognised in the financial

statements.

Fair value of assets

Financial assets at fair value through profit or loss (note 5) are comprised of shares in an unlisted company held at fair value.

The fair value of these shares, in the absence of quoted prices, has been determined by using valuation techniques.

waikatO-tainui fisheries limiteDNOTeS TO The FiNaNCiaL STaTemeNTSfor the year ended 31 March 2012

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2.3 Financial assets and liabilities

Recognition and measurement

A financial asset or liability is recognised if the Company becomes party to the contractual provisions of the instrument.

Regular purchases and sales of financial assets and liabilities are recognised on the trade date, the date on which the

Company commits to purchase or sell the asset or liability. A financial asset or liability is recognised initially at its fair

value and in the case of a financial asset or liability measured at amortised cost includes transaction costs that are

directly attributable to the acquisition or issue of the instrument.

Financial assets and liabilities measured at amortised cost

Financial assets and liabilities measured at amortised cost are non-derivative financial assets and liabilities which meet

the following criteria:

a) held within a business model whose objective is to hold an instrument in order to collect contractual cash flows; and

b) the contractual terms of the instrument gives rise on specified dates to cash flows that are solely payments of

principal and interest on the principal amount outstanding.

A gain or loss on a financial asset and liability that is measured at amortised cost and is not part of a hedging relationship

recognised in profit and loss when the instrument is derecognised, impaired or reclassified and through the amortisation

process.

Trade and other receivables are classified as financial assets measured at amortised cost. Trade and other payables and

debt instruments are classified as financial liabilities measured at amortised cost.

Financial assets and liabilities measured at fair value through profit or loss

Financial assets and liabilities are measured at fair value unless measured at amortised cost. At initial recognition, an

entity may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value

of an investment in an equity instrument within the scope of this NZ IFRS that is not held for trading. If an entity makes this

election, it shall recognise in profit or loss dividends from that investment when the entity’s right to receive payment of

the dividend is established in accordance with NZ IAS 18 ‘Revenue’. An entity may also at initial recognition, designate an

instrument as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement

or recognition inconsistency that would otherwise arise from measuring the instruments or recognising gains and losses

on them on different bases.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active

(and for unlisted securities), the Company establishes fair value by using valuation techniques. These include the use of

recent arm’s length transaction pricing models refined to reflect the Company’s specific circumstances.

A gain or loss on a financial asset or liability that is measured at fair value and is not part of a hedging relationship shall

be recognised in profit and loss unless the financial asset is an investment in an equity instrument and the entity has

made an irrevocable election to present gains and losses on that investment in other comprehensive income.

Financial assets are de-recognised when the rights to receive cash flows from the financial assets have expired or have

been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial liabilities

are de-recognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.

2.4 Revenue recognition

Revenue is comprised of the fair value for the sale of goods and services, net of goods and services tax (GST), rebates

and discounts. Revenue is recognised as follows:

(a) Financial assets are classified as revenue on initial recognition; and

(b) Dividend income is recognised when the right to receive payment is established.

2.5 Current income tax

The Inland Revenue Department approved the Company as a Maaori Authority for the purposes of the Income Tax Act

1994. Accordingly, income tax is payable at a rate of 19.5%.

NOTeS TO The FiNaNCiaL STaTemeNTS CONTiNueD

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Tainui Group Holdings Annual Report 2012

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Tainui Group Holdings Annual Report 2012

2.6 gST

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

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

Ordinary shares

Balance at beginning of year 100 - 100 -

Balance at end of year 100 - 100 -

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

par value.

4 Retained earnings

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

Balance at beginning of year 13,349 12,935

Net profit for the year 499 414

Balance at end of year 13,848 13,349

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

At fair value through profit or loss

Shares in unlisted company - AFL income shares 12,935 12,935

The shares comprise of 6,851 income shares in AFL. These income shares received on 31 March 2008 have no voting

rights attached and can be traded amongst iwi.

The fair value of AFL income shares are based on cash flows calculated on an annual basis from 2008 to 2017 and a

terminal value, based on cash flows in 2017 with an assumed growth factor of 2.6% per annum (2011: 2.6%) and a post

tax discount rate of 9.5% (2011: 9.5%). A 20% (2011: 20%) liquidity and minority interest discount has been taken into

account in determining the fair value.

6 Related parties

Transactions between related entities include advances to and from other entities owned by the Shareholder. All amounts

are repayable upon demand and are interest free. There is no impairment of any related party balances.

The advance account movement of $0.9m represents cash received and payments made on behalf of the Company by

Tainui Group Holdings Limited (2011: $0.4m).

7 Contingent liabilities

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

8 Capital commitments

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

9 events subsequent to the reporting period

The company declared a dividend of $0.9m on 22 June 2012.

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Tainui Group Holdings Annual Report 2012

This annual report has been printed on environmentally friendly paper which has been sourced

from legally harvested forests, and has been printed with environmentally friendly ink.

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