Report to FINANCE & PERFORMANCE Committee for decision€¦ · Finance & Performance Committee 27...

Finance & Performance Committee 27 May 2020 1 of 35

10.1.1. Gisborne Holdings Limited - Draft Statement of Intent 2021-2023

20–82

Title: Gisborne Holdings Limited - Draft Statement of Intent 2021-2023Section: Finance & Affordability – and - Transformation & Relationships

Prepared by: Pauline Foreman – Chief Financial Officer

Meeting Date: 27 May 2020

Legal: Yes Financial: Yes Significance: Low

Report to FINANCE & PERFORMANCE Committee for decision

PURPOSEThe purpose of this report is to consider and seek feedback on the draft Statement of Intent that has been prepared by Gisborne Holdings Limited (GHL) for the year commencing I July 2020 year and the two following years.

SUMMARYGisborne Holdings Limited (GHL) provided Council with its draft Statement of Intent commencing 1 July 2020 on 2 March 2020.

The draft Statement of Intent (SoI) provided by GHL shows a strong intention of working with Council and a commitment to aligning to Council’s strategic direction. The draft SoI addresses most of Councils expectations and is attached in Attachment 1.

The main changes to the draft SoI were:

Addressing matters raised within the Letter of Expectationo Strategic Alignment with Tairāwhiti 2050o Consideration of climate changeo Consideration of Tangata Whenua/Māori Engagement o Alignment with Treasury Management Policy o Alignment with Council’s Significance and Engagement Policyo Major transactions.

Financial Measures o Reduced performance ratio: shareholders funds to total assets ratio of 75%

(previously 80%) o Increased debt ratio: bank debt to bank debt plus equity of no more than 25% (previously

20%).

As part of the annual Statement of Intent process, Council considers the Draft Statement of Intent, and provides comments and feedback to GHL. GHL will deliver the final Statement of Intent after consideration of comments made by Council.

The decisions or matters in this report are of Low significance in accordance with the Council’s Significance and Engagement Policy.


RECOMMENDATIONSThat the Finance & Performance Committee: 1. Provides feedback on Gisborne Holdings Limited draft Statement of Intent 2021–2023.

Authorised by:

Keita Kohere - Director Transformation & RelationshipsPauline Foreman - Chief Financial Officer

Keywords: Statement of Intent, SOI, Gisborne Holdings Limited, GHL, Letter of Expectation.


BACKGROUND

Historical Development of Gisborne Holdings Limited

1. Gisborne Holdings Limited (GHL) is a Council Controlled Trading Organisation (CCTO). A CCTO: a) operates at arm’s length from the Councilb) achieves the objectives of Council (its sole shareholder) as specified in the Statement of Intentc) has an independent board that is accountable to the Council for the CCTO’s performanced) is a separate legal entity with directors being responsible for overseeing the management of the

business.

2. The statutory regime for CCTO is set out in Part 5 of the Local Government Act 2002 (LGA02).

3. A key part of the LGA02 regime, and focus of this report, is the requirement for a Statement of Intent (SoI). The statutory requirements around Statements of Intent are specifically set out in Schedule 8 of the Act.

4. The content of the SoI is primarily determined by statute and includes the objectives of the company, the nature and scope of activities to be undertaken, accounting policies, performance targets, distributions, information to be provided to shareholders, procedures to be followed in respect of investments, estimate of the commercial value of the shareholders’ investment, and various other matters.

5. From 2016, coinciding with the change in business from a farming operation, significant changes were made both to GHL’s Constitution and annual Statement of Intent (SoI).

6. Each year as part of the annual review process, GHL has made updates to its SoI. These changes incorporate expectations of Council, refinement of practices, accommodation of changes in legislation and Council’s policies.

The Statement of Intent Process – Obligations

7. The LGA02 requires GHL to:a) present its draft SoI to its shareholder on or before 1 March each year;b) to consider the shareholder’s comments by 1 May;c) to complete the Statement of Intent by 30 June; andd) to make it publicly available within one month of completion.

8. LGA02 allows for the shareholder to extend a deadline for a period not exceeding (in total) one calendar month, by giving written notice. Due to COVID-19, there were delays to Council’s ordinary course of business and both the shareholder’s comments and final Statement of Intent have deadlines extended by one calendar month [20-110].

9. The SoI should reflect the strategic direction of both the Council and GHL. The SoI must set out the GHL’s objectives and the nature and scope of the activities it will carry out for the next three years and include any subsidiaries (for example Tauwhareparae Farms Limited).


10. The SoI must not be inconsistent with the GHL’s Constitution. The Act makes the importance of the SoI and Constitution clear. It provides that all decisions about the operation of GHL must be made by, or under the authority of, the board – in keeping with the SoI and the Constitution.

11. Council must have an effective governance regime for managing the risks associated with GHL including through the SoI process. This is part of Council’s responsibly for prudent financial management.

12. The draft SoI was been submitted to Council for review on 2 March 2020 and is attached in Attachment 1. The changes made to next year’s SoI are highlighted in yellow. Commentary from GHL has been provided and is shown in red at the section beginning.

13. Attachment 2 shows the annual cycle in a normal year. COVID 19 caused some disruptions to the overall process this year. Normally in April there would be a workshop with Councillors to discuss feedback that would be given to GHL. This year feedback and changes will be truncated into the month of May.

14. Council can provide direction to GHL for the 2020/21 SoI through a Letter of Expectation (LoE). The Committee approved the contents of the draft LoE at its 27 November 2019 meeting. Attachment 3 is the copy of the Letter of Expectations that was sent to GHL.

DISCUSSION and OPTIONS

15. The sections below cover the matters raised in Council’s LoE, an assessment of how GHL addressed those matters in their draft SoI and a recommendation for Council feedback to GHL.

16. The Draft SoI shows that most of Council’s expectations raised with 2019 LoE have been addressed. Commentary by GHL within the Draft SoI, shows that there is a strong commitment from GHL to work with and align to Council’s strategies and policies.

Strategic Alignment with Tairāwhiti 2050

17. In section 5 of the draft SoI, GHL addressed their Strategic Alignment with Council’s spatial plan (Tairāwhiti 2050).

18. GHL’s inclusion of this new section in the SoI is expected to contribute to greater alignment of outcomes with Council.

Local Government Act 2002

Asset Management Plans

19. The LoE states that GHL capital expenditure aligns with legislation (LGA) where Asset Management Plans are required to be planned for and delivered.

20. As Council moves towards delivery of its next 2021–2031 Long Term Plan (2021–2031 LTP) there is an expectation the Council Group (Council plus its CCTO) have asset management plans for at least ten years.

21. Under the non-financial targets (Draft SoI p.8) the SoI has identified 10 year rolling asset management plans as one of their goals. This is in addition to the three year maintence plans. This now aligns to Council’s asset management framework.


22. Under section 19 (Draft SoI p.16), the forecast Capital Expenditure is shown for the next three years with $810k forecast in the current financial year (2019/20) and $3.4m for each of the following three years.

Climate Change Mitigation Plans

23. There is a new section on climate change in the GHL SoI under section 6 p 5.

24. There are also indirect references under section 5 p 4, under the outcome of “take sustainability seriously” and “celebrate our heritage”, and under Non–financial Targets, p 9, as outlined below:

a) “GHL will incorporate energy efficient practices into …. developments, upgrades and businesses where commercially viable”

b) “… employing sustainable land use practices and considering land retirement/reversion opportunities”

c) “Ensure land is managed sustainably and to be a leader in land stewardship.”

25. The Office of the Auditor General (OAG) has given strong indications that they will be reviewing councils’ climate change plans within the 2021–2031 Long Term Plan. The expectation from the OAG is that councils will have a Climate Change Disclosure. Ideally the Council Group will be following the same strategic direction.

26. Commentary from GHL: They have begun this process by starting to collect data required for emission profiling and “have fed into the work Council undertook late 2019 and early 2020” on climate change action plans.

Tangata Whenua/Māori Engagement

27. The LoE indicated GHL needs to consider how it will conduct its relationships with iwi, hapu and other Māori organisations. This includes consideration of Māori culture and traditions with their ancestral land, water, sites, wāhi tapu, valued flora and fauna, and other taonga, before making any decision that may significantly affect land or a body of water.

28. In section 5, the draft SoI includes some language around the ‘Delivering for Māori’ outcome which reads:

“… partnering with or supporting iwi if a suitable commercial venture was identified. Establishing relationships with iwi and inviting their participation in development proposals where relevant.”

“… to undertake engagement with iwi, hapu, and other Māori organisations in a manner that is consistent with the direction provided in Tairāwhiti Piritahi. Engagement should be undertaken in a way that values Te Ao Māori (the Māori world) and strengthens relationships with Māori.”

29. GHL’s outcomes do meet legislation and Council’s expectations for Māori engagement. Section 60 of Act, states that before a CCTO makes a decision that may affect land or a body of water, it must take into account the relationship of Māori – including iwi, hapu and other Māori organisations.


Alignment to Council Policies

Treasury Management Policy

30. The Local Government Funding Agency (LGFA) have resolved to extend lending to CCTOs, with the stipulation that GHL must have supported uncalled capital and their borrowing process must align to the borrowing process for Council.

31. The SoI under section 15 p 12, states that– if opportunites for LGFA borrowing arose – GHL will ensure its Treasury Management Policy and Lending Policy Convenants will align to Council’s. They will also have written quarterly reports submitted to the Audit & Risk Committee.

32. This meets Council’s expectation over alignment to compliance to Council’s policies, (especially over adhering to strict lending convenants) and report monitoring.

Board Appointments and Remuneration Policy

33. Council’s expectation is that GHL adheres to our Board Appointments & Remuneration Policy 2018 and GHL’s Constitution and that this adherence should be reflected in the SoI. The SoI under section 7 Corporate Governance p 5, does include wording that appointment tenure and reappointment eligibility criteria are defined by the company’s Constitution and by Council’s Board Appointments & Remuneration Policy.

34. The LoE also requires that the names of directors who are due for retirement or reappointment are identified and provided to Council by 31 March each year – prior to the date of appointment or reappointment – and the SoI aligns with this expectation.

35. However, subsequent to the LoE, the draft SoI added a section on Board performance reviews and that they are conducted as a self-review process: “The Board reviews its own performance regularly”.

Recommendation

36. That this process should be strengthened with consideration of a Council-led direction on a Board Performance Framework requiring external reviews. The framework could be incorporated into Council group policy with reviews:

a) to be held at least on an annual basis, with monitoring of agreed performance improvement initiatives

b) to be undertaken by an independent, external reviewer

c) to be based on a methodology that includes qualitative, quantitative and observational approaches

d) to include relevant assessment criteria that relate to the Board’s governance role, practices and responsibilities – including strategy, risk and compliance, performance and Board culture

e) to assess the Board (as a whole), the individual Board members and the Chair of the Board

f) to allow for input from the shareholder into the themes or topic areas evaluated

g) to seek feedback from individual Board members and senior management


h) to provide a written report to GHL summarising findings and suggesting areas for improvement

i) to provide Council with a high-level feedback report addressing theme areas and areas of focus for improvement

j) requiring the Chair of GHL to meet at least on an annual basis with the Mayor and the relevant chair of the committee to discuss the progress the Board is making in addressing any areas of improvements following a Board-led review.

37. The above ‘Board Performance Framework’ has been taken from other councils’ best practice procedures.

Significance and Engagement Policy

38. Council indicated that in addition to the current SoI which takes a “no surprises” approach whereby GHL work collaboratively with Council, in respect of any significant matters (subject to commercial sensitivity and confidential matters), GHL expand upon this. There is an expectation that GHL is required to give effect and engage in the same manner as Council’s Significance and Engagement Policy or have a minimum range as outlined below.

39. Engagement ranging from informing and consulting to seeking approval depending on the decision based on the significance of the decision where:a) Decisions that potentially affect all or a large part of the Gisborne district.b) Decisions potentially having a large adverse effect on a specific community, including the Māori

community. c) Decisions which relate to matters that are of wide public interest.d) Decisions which will impact on Council’s financial strategy, delivery of the Long Term Plan and

intended levels of service (unless the impact is minor or has been agreed to by Council through the SoI process).

e) Decisions which will expose Council to an increased level of risk.

40. The points above have been included in the SoI under Section 12, page 11.

Major Transactions

41. Council expects certain transactions to be classified as a “major transaction” where approval must be sought from Council before they are entered into. In addition, a written business case or report must be given to Council in order to assess for approval purposes.

42. The LoE requested that long term leases, partnering solutions and joint ventures be added as a major transaction.

43. The draft SoI reflects most of Council’s considerations in the LoE under section 12, p11 whereby the draft SoI states “major transactions” include: a) Sales of landb) Formation of a subsidiary company or joint venturec) Acquisition or disposal of fixed assets, investments and shares exceeding 10% of the total

value of the assets – or $10m – (whichever is the lessor)d) Long term (15+ years) lessee agreements.


44. While the LoE requested generic long term leases and partnering solutions to be added as a major transaction, GHL gave feed back and stated that this generic terminology was very broad and it was difficult to interpret what was meant. As such they added the clauses that they felt best represented their interpretation of what Council was requesting.

Recommendation

45. In order to give greater clarity to GHL, and cover situations where Council should give approval as defined under GHL’s major transaction classification, to add:

a) Any transaction or dealing in relation to a strategic asset*:i. Reducing control over the asset (whether directly or indirectly)ii. Reducing or materially affecting the asset’s valueiii. Granting any legal interest in the asset to a third partyiv. Affecting the CCTO’s or Council’s ownership of the asset.

b) Any long-term contracts for the development or operation of a strategic asset (being a contract binding the CCTO to a term exceeding fifteen (15) years, including any renewals at the contractor’s option)

c) *Strategic asset being defined in terms of Local Government Act 2002 and Council’s Significance & Engagement Policy or as so defined by GHL.

46. In addition, they have noted that any matters requiring Council approval will be formally submitted through a written report aligning with Council’s reporting calendar.

Risk Appetite

47. Council’s expectation is that GHL’s risk appetite be incorporated within the SoI so group risk appetite can be determined. This will include the following:

a) GHL capital expenditure is forecast in greater detail within the SoI. As requested, they have included this information in their SoI.

b) Capital expenditure aligns with legislation (LGA) where Asset Management Plans are required to be planned for and delivered. This has been addressed in the SoI, see item 14 above.

48. A new section has been added under section 9, page 7 where it is stated that they will proactively manage all their risks – including strategic, financial, operational, and reputational risks (including the risk of fraud and/or corruption).

49. In addition they will report to Audit & Risk Committee on risk management activities and effectiveness of risk management process.

Tax Government Framework

50. GHL declined Council’s request to include a Tax Governance Framework, noting they do not believe this level of detail is appropriate for inclusion in the SoI. GHL has suggested instead that they could agree to report to the Council’s Audit & Risk Committee.

51. However GHL have further stated that the Tax Governance Framework is added to its risk management framework and therefore reporting will be automatically caputured.

52. No further recommendation is needed.


Performance and Financial Measures

53. The draft SoI has made a number of changes to its performance measures, under section 10 pages 7-9, Section 11 page 9 and under section 19 Forecast Financial Information pages 14-16.

Section 10 Performance Measures, pages 7-8

54. Two significant changes to ratios relate to debt and the ability to pay interest:

a) Increased debt ratio: Bank debt to bank debt plus equity of no more than 25% (previously 20%). This ratio is used to evaluate a company’s leverage. Essentially this means that it measures how much a company is financing its operations through debt versus funds that GHL wholly-own themselves.

b) Reduced performance ratio: shareholders’ funds to total assets ratio of 75% (previously 80%). This ratio is used to evaluate a company’s leverage. Both the debt ratio and shareholders’ funds to total assets ratio, are measurements of financial leverage. That means they measure how much belongs to GHL as opposed to the bank.

55. When companies increase their financial leveraging, they increase profitability (through the tax deductions of interest), but it comes at the cost of higher risk.

56. Commentary from GHL: “We currently have low debt/equity ratio and secure assets/ cashflow. 50% of our annual cash profit is returned to GDC and the balance is used to cashflow capital investments. To enable the business to grow and provide for greater returns to Council we are seeking approval to increase bank debt.”

Section 11 Distributions to Shareholder p 9

57. GHl has maintained the minimum distribution at $1.8m. It was signalled within the draft SoI version that was received on 2 March 2020 (pre-COVID 19), that the distribution would be increased to $2m. However, after forecasting affects of the pandemic – including the forecast income for the Holiday Park – the dividend was reinstated to $1.8m. This “base” dividend incrementally increases by $100k to reach $2m by the year 2022/23.

Section 19 Forecast Financial Information pages 14-16

58. The forecast financial information has been updated for not only a forecast for the current year (2019/20) but also for the three following years.

Related Party Transactions

59. The Draft SoI under section 14 states that “assets transferred to GHL from GDC will be transferred at an independently assessed market value.”

60. Previously there was an additional sentence which originated when there were asset transfers from Council in 2016 and it stated “GHL will issue shares to GDC for the equivalent value”. This has since been removed.

61. This aligns with Council’s Investment Policy, which states that “...the onus is on Council, as the ultimate owners of each entity in the group, to take lead responsibility”.


Segmental Reporting

62. Last year’s SoI (commencing 1 July 2019) had a section on Segemental Reporting. Below is a copy of what was included.

63. Segmental Reporting has value as it gives transparency over GHL investments and allows good governance oversight of GHL business.

64. This year’s SoI does not include the section.

Table 1 Last years SoI

Recommendation

65. It is recommended that Segmental Reporting is reinstated for the current SoI.

Table of Recommendations

Staff RecommendationReference (starting at

paragraph no.)Y/N

Board Appointments and Remuneration Policy

Strengthen the process and adopt Board Performance Framework in keeping with other Councils’ best practice procedures.

37

Major Transactions

Add clause around "significant asset" defined in terms of Local Government Act and Significance and Engagement.

41

Segmental Reporting

To reinstate Segmental Reporting section.62


ASSESSMENT of SIGNIFICANCE

Consideration of consistency with and impact on the Regional Land Transport Plan and its implementationOverall Process: Low SignificanceThis Report: Low Significance

Impacts on Council’s delivery of its Financial Strategy and Long Term PlanOverall Process: Low SignificanceThis Report: Low Significance

Inconsistency with Council’s current strategy and policyOverall Process: Low SignificanceThis Report: Low Significance

The effects on all or a large part of the Gisborne districtOverall Process: Low SignificanceThis Report: Low Significance

The effects on individuals or specific communitiesOverall Process: Low SignificanceThis Report: Low Significance

The level or history of public interest in the matter or issueOverall Process: Low SignificanceThis Report: Low Significance

66. The decisions or matters in this report are considered to be of Low significance in accordance with Council’s Significance and Engagement Policy.

COMMUNITY ENGAGEMENT

67. In this instance, as required by GHL’s Constitution, Council is the consulted party. No community engagement has been undertaken regarding the content of GHL’s draft SoI.

TANGATA WHENUA/MĀORI ENGAGEMENT

68. No engagement with tangata whenua has been undertaken regarding the content of GHL’s draft statement of Intent.

CLIMATE CHANGE – Impacts / Implications

69. With the exception of the vehicle fleet, GHL manages the majority of Council’s emission producing activities and holds assets likely to be impacted by climate change and sea level rise. The draft SoI mentions both directly under a new climate change section, and indirectly references sustainability through section 5, Take sustainability seriously… “continuing to incorporate energy efficient practices into our developments, upgrades and businesses where commercially viable”.


CONSIDERATIONS

Financial/Budget

70. The annual GHL SoI outlines broadly how the company will manage Council’s assets over the coming three years. The management of these assets has implications for Council’s annual budget and budget forecasting, such as the year on year projections in the Long Term Plan.

71. The 2020/21 Annual Plan includes the forecast dividend of $1.8m.

Legal

72. The LGA requires local authorities to regularly undertake performance monitoring of CCTOs (s.65(1)). A key part of that performance management is the setting of performance targets through the SoI.

73. If Council does not agree the content of a Statement of Intent (SoI) delivered to it, it must, as soon as practicable, take all practical steps to have the SoI modified (s.65(2)). There is power under the LGA for Council to pass a resolution which requires the Board of a CCTO to modify the SoI by including or omitting provisions. Any Board presented with such a resolution must modify the SOI accordingly (Clause 5 Schedule 8).

74. Half yearly and annual reporting (in accordance with the provisions of the LGA) are also a requirement (s.66 and 67).

POLICY and PLANNING IMPLICATIONS

75. Providing an LoE is consistent with Council’s commitment to maintaining an effective and transparent relationship with GHL.

RISKS

76. There is a risk that GHL operations differs from Councils Group policies, and legisltation.

77. There is a risk that without a LoE or Council’s feedback on the Draft SOI , GHL will prepare an SoI that does not sufficiently address the objectives of Council.

NEXT STEPSDate Action/Milestone Comments

By 31 July 2020 Final SOI to be approved

ATTACHMENTS

1. Attachment 1 - Letter of Expectations for 2021 to 2024 [20-82.1 - 4 pages]2. Attachment 2 - Draft GHL SoI commencing July 2020 [20-82.2 - 18 pages]3. Attachment 3 - Annual Cycle for Developing the Statement of Intent and Reporting Performance

[20-82.3 - 1 page]

PO Box 747 Gisborne 4040 New Zealand

PHONE +64 6 867 2049 • FAX +64 6 867 8076 • EMAIL service @ gdc.govt.nz • www.gdc.govt.nz

A1653397

20 December 2019

Rob Telfer

Chair

Gisborne Holdings Limited

PO Box 694

GISBORNE 4040

By Email: [email protected]

Dear Rob

Letter of Expectations for 2021 to 2024

This letter of expectations sets out Council’s priorities and expectations to inform the development

of Gisborne Holdings Limited (GHL) draft Statement of Intent (SoI) for 2021 to 2024.

This letter has been informed by discussions with councillors and it sets our general expectations

across the group and key strategic expectations for GHL.

I note also that during 2020 Council will work with GHL to undertake a full strategic review, making

sure that the strategic direction of GHL is current and that it aligns with Council’s strategic direction.

This will include both reviewing that GHL is fit for purpose now and also for the future. This review is

expected to be completed by March 2020. It is expected that any matters arising from the review

will be taken into consideration in the final SoI.

The main messages and priorities are driven from aligning to Council’s policies, strategic direction

and changes in legislation.

General Messages and Priorities

Strategic Alignment with Tairawhiti 2050

Tairawhiti 2050 is a 30-year future thinking plan for the region. It looks at how Council will respond

to the opportunities and the challenges facing us, such as climate change, biodiversity loss,

changing technology and population growth.

Council’s expectation is that GHL will outline within the SoI how they intend to contribute to the

outcomes included in Tairawhiti 2050. Currently the draft outcomes are:

1. A driven and enabling Council – Council provides the leadership needed for transformation

in Tairawhiti.

2. Resilient communities – Our communities can respond quickly to change.

3. A vibrant city and townships – Tairawhiti is a great place to live, work and play.

4. Connected and safe communities – People will be able to get where they want to go more

easily, safely and sustainably.

5. We take sustainability seriously – We are future focused and manage our natural and

physical resources for future generations.

6. We celebrate our heritage – We protect and care for the natural environment as our

shared cultural heritage.

Attachment 20-82.1




7. A diverse economy – Tairawhiti is prosperous with many opportunities and delivers a better

standard of living for everyone.

8. Delivering for Maori – A thriving Maori identity is Tairawhiti’s point of difference in the world

Local Government Act 2002 (LGA)

Recent amendments to the Local Government Act 2002 (LGA) which came into force in October

2019 have special emphasis on additional plans and how Council Controlled Trading Organisations

deliver them.

It is Council’s expectation that GHL prepare and deliver plans such as asset management plans

and climate change mitigation plans.

In addition, Council expects that GHL will take into account how it will conduct its relationships with

others, including iwi, hapu and other Maori organisations. This includes consideration of Maori

culture and traditions with their ancestral land, water, sites, wahi tapu, valued flora and fauna, and

other taonga, before making any decision that may significantly affect land or a body of water.

Alignment to Council Policies

Council expects that within its SoI, GHL will take into account key Council policies including policies

that may be applicable in the future.

Treasury Management Policy

The Local Government Funding Agency (LGFA) is Council’s biggest lender. They have resolved to

extend lending to CCTO’s. This is expected to bring benefits to GHL, as LGFA has access to quality

lenders at favourable rates.

One condition from the LGFA is that GHL must have supported uncalled capital, which poses

potential risks as there may be a call on Council for financial contribution in the future. One other

requirement of a CCTO is that the borrowing process must be “as close as possible to the borrowing

process for Council lending”.

It is Council’s expectation that the SoI reflect that if opportunities to borrow from LGFA arose, GHL

would adhere to the group’s (Council and GHL) Treasury Management Policy. In addition,

quarterly written reports would need to be submitted to the Audit and Risk Committee showing

conformance to the policy.

Board Appointments & Remuneration Policy

Board appointments are covered by both GHL’s constitution and by Council’s policy Board

Appointments and Remuneration Policy 2018. It is expected that the SoI reflect that it adheres to

the Council Policy.

Also, it is expected that the names of directors who are due for retirement or re-appointment are

identified and provided to Council by 31 March each year prior to the date of appointment or

reappointment.


The current SoI has a ‘no surprises’ approach whereby GHL works collaboratively with Council in

respect of any significant matters, subject to commercial sensitivity and confidential agreements.

However, Council’s Significance and Engagement Policy is much more than this. There is an

expectation that the SoI incorporates as a minimum the following.

Attachment 20-82.1




Engagement ranging from informing and consulting to seeking approval based on the

significance of the decision where:

a) Decisions that potentially affect all or a large part of the Gisborne district.

b) Decisions that potentially have a large adverse effect on a specific community, including

the Maori community.

c) Decisions which relate to matters that are of wide public interest.

d) Decisions which will impact on Council’s financial strategy, delivery of the Long Term Plan

and intended levels of service (unless the impact is minor or has been agreed by Council

through the SoI process).


It is expected that, if there is a significant matter that needs to be heard at a Committee of Council,

that a written report is submitted in time to also allow staff to have an accompanying report over

the matters raised.

Risk Appetite

Council is required by legislation to act prudently. GHL’s risk appetite needs to be incorporated

within the SoI, so that a resulting group risk appetite can be determined.

It is also expected that the planned capital expenditure is forecast in greater detail within the SoI.

Unplanned expenditure poses greater risk to Council as it will have no visibility or overall strategic

direction defined for that expenditure.

It also aligns with legislation (LGA) where Asset Management Plans are required to be planned for

and delivered.

Major Transactions

To align with Council’s risk appetite, Council expects certain transactions to be classified as a

‘major transaction’ where approval must be sought from Council before they are entered into.

Also, there is an expectation that a written business case or report is given to Council in order to

assess for approval purposes.

These transactions are:

a) Long term leases

b) Partnering solutions

c) Joint ventures

Tax Governance Framework

There is an expectation that a Tax Governance Framework be included within the SoI. The

framework should include:

a) A high level Tax Governance Framework that provides ‘best practice’ for the delegation,

review and reporting of tax responsibilities.

b) An operational tax management strategy setting out the key steps to be undertaken to

proactively manage tax risks and to be reviewed annually.

c) An annual update setting out relevant tax developments during the year, and providing

external assurance regarding the steps that have been taken to manage or mitigate any

identified risks. It is expected that a written report be submitted to the Audit & Risk

Committee.

Attachment 20-82.1




Board Governance

Currently the Constitution and Council’s Board Appointments and Remuneration Policy are for the

most part silent on how Board governance should operate. While the policy does have a review

on the Board Governance performance, it is silent on the induction process.

It is Council’s expectation that the SoI includes the process that will be undertaken in relation to

the Board’s professional development training. The expectation from Council is that training should

incorporate governance for new directors without this experience and refresher courses for the

more experienced directors.

Also, there is an expectation that GHL will provide a Board induction process for new directors

which will be in addition to and supplement a Council-led induction and welcome for new

directors.

Administration

The SoI includes the relationship of Council to GHL but there is no clear diagram showing this on

GHL’s website. It is expected that the website shows this relationship.

Lastly, it is noted that GHL complies with legislation by making its SoI available to the public on

GHL’s website but we wish to reiterate the compliance of timeliness as required by the LGA. The

LGA states that the final Statement of Intent and each adopted modification of a Statement of

Intent must be made available to the public within one month after the date on which it is adopted

or delivered to the shareholders.

I look forward to receiving a draft of GHL’s Statement of Intent by 1 March 2020.

Yours sincerely

Rehette Stoltz

Mayor

Attachment 20-82.1


Statement of Intent

2021-2023

Attachment 20-82.2


GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020

Page | 1

TABLE OF CONTENTS

Page

1. Introduction 2

2. Company Mission 2

3. Company Objectives 2

4. Nature & Scope of Activities 3

5. Strategic Alignment with Tairawhiti 2050 4

6. Climate Change 5

7. Corporate Governance 5

8. Growth & Investment Strategy 6

9. Risk Appetite 7

10. Performance Measures 7

11. Distributions to Shareholder 9

12. Reporting to Shareholders 10

13. Major Transactions 12

14. Related Party Transactions 12

15. Treasury Management 12

16. Estimated Commercial Value of the Company 12

17. Accounting Policies 13

18. Audit 13

19. Forecast Financial Information 14

Attachment 20-82.2



Page | 2

1. INTRODUCTION

Amended to provide more clarity to the process and purpose of the SOI.

This Statement of Intent (SoI) is prepared in accordance with Section 64(1) of the Local

Government Act 2002. The SoI specifies for Gisborne Holdings Limited (GHL or the Company)

the objectives, the nature and scope of the activities to be undertaken, and the performance

targets and other measures by which the performance of the Company may be judged in

relation to its objectives.

The SoI is a public and legally required document, reviewed and agreed annually with the

Shareholder, Gisborne District Council (GDC) and covers a three-year period. This SoI covers the

period from 1 July 2020 to 30 June 2023.

2. COMPANY MISSION

To provide an appropriate return and growth from subsidiary companies and community assets

relative to the industry they operate in.

To establish and efficiently direct an outstanding group of Council-controlled business activities

which are aligned with Council’s financial strategy.

By bringing the best available expertise to bear upon management of its assets, GHL will

contribute to the Gisborne District Council (GDC) by owning and managing selected regional

assets and investments in accordance with sound business practice and sustainable

development principles. It will provide funds to the GDC while protecting the capital value of

those assets under its stewardship.

Investing in, and promoting the establishment of, key infrastructure and community assets in a

commercially viable manner.

3. COMPANY OBJECTIVES

Updated to include reference to the Objectives outlined in the Local Government Act, previously

referred to under the Corporate Governance - Regulatory Framework section.

The objectives are those as provided in Section 59 of the Local Government Act 2002 including

the following specific objects:

• Manage existing businesses to maximise and sustain profit generation.

• Grow the asset base while providing a predictable and sustainable revenue stream to

Gisborne District Council.

• Focus on growing non-rates revenue for Gisborne District Council.

• To increase annual distributions to Gisborne District Council or to become an enabler for

GDC to deliver projects by leveraging our balance sheet. A natural trade off exists

between these options.

GHL is committed to:

• environmental stewardship

• health and wellbeing of staff

Attachment 20-82.2



Page | 3

4. NATURE & SCOPE OF ACTIVITES

Amended section heading and GDC’s revised Committee structure.

Gisborne Holdings Ltd is a wholly owned council-controlled trading organisation of Gisborne

District Council. The company is run a commercial basis and receives no funding from Gisborne

District Council.

The group ownership and reporting structure is as follows:

The Group consists of:

Gisborne Holdings Ltd – the parent company with divisions including:

• Property Holdings – manages a large and diverse portfolio of commercial, tenant

occupied rentals, farmland and forestry property. This division is also responsible for

project managing all the company’s developments.

• Gisborne Vehicle Testing Station – an independent testing station and AA agency.

• Waikanae Beach Top 10 Holiday Park – the region’s largest accommodation provider,

servicing the tourism sector.

Tauwhareparae Farms Ltd – farm and forestry operations at Tolaga Bay covering some 11,000

hectares of which 6,000 is considered effective with the remainder in forestry blocks and

Protected Management Area’s (PMA’s).

Gisborne District Council (GDC)

GHL reports to GDC Finance &

Performance Committee

Gisborne Holdings Limited (GHL)

100% owned by GDC

Commercial Property & Projects

Division of GHL

Waikanae Beach Top 10 Holiday Park

Division of GHL

Gisborne Vehichle Testing Station

Division of GHL

Tauwhareparae Farms Limited

100% owned by GHL

Attachment 20-82.2



Page | 4

5. STRATEGIC ALIGNMENT with TAIRAWHITI 2050

New section to incorporate changes as per Letter of Expectation. This outlines our initial thoughts,

but we welcome comments and feedback.

GHL intend to contribute to the outcomes included in Tairawhiti 2050 by:

A driven and enabled Community

…promoting an open and collaborative relationship with GDC and supporting them to

enact positive change through the provision of information or resources

Resilient communities

…managing the business prudently to ensure a predictable and sustainable revenue stream

can be provided to GDC to assist in the provision of key infrastructure

Vibrant city and townships

…continuing to invest in and develop the Waikanae Beach Top Ten Holiday Park (people

and infrastructure) to provide a positive holiday destination/experience for both locals and

visitors to enjoy

Connected and safe communities

…working at the micro level to ensure universal access is considered in all developments

and upgrade work undertaken by GHL and by providing beach wheelchairs (in cooperation

with CCS and other local communities) alongside our hire equipment offering

We take sustainability seriously

…continuing to incorporate energy efficient practices into our developments, upgrades and

businesses where commercially viable

We celebrate our heritage

…taking stewardship of our land assets seriously to ensure land, waterways and biodiversity

is protected/restored for future generations by employing sustainable land use practices

and considering land retirement/reversion opportunities

A diverse economy

…continuing to grow the business will enable GHL to; work towards being a living wage

employer, create and promote new training opportunities, grow returns to GDC

Delivering for and with Maori

…partnering with or supporting iwi if a suitable commercial venture was identified.

Establishing relationships with iwi and inviting their participation in development proposals

where relevant

…to undertake engagement with iwi, hapu, and other Maori organisations in a manner that

is consistent with the direction provided in Tairāwhiti Piritahi. Engagement to be undertaken

in a way that values Te Ao Maori (the Maori world) and strengthens relationships with Maori.

Attachment 20-82.2



Page | 5

6. CLIMATE CHANGE

New section to incorporate changes as per Letter of Expectation.

GHL will contribute towards reducing carbon emissions and contributing towards a climate

resilient future by:

Working with Council in the review and update of low carbon Tairawhiti to deliver an integrated

approach to climate change, addressing both emissions reduction (mitigation) and climate

resilience (adaptation)

Implementing actions identified within a plan and any future iterations of the plan appropriate

for GHL

Embedding climate change considerations into decision-making, planning and policies

regarding both emissions reduction and addressing the impacts of current and on-going climate

change

7. CORPORATE GOVERNANCE

Revised section for clarity and to incorporate changes as per Letter of Expectation.

Board Role and Responsibility

GHL’s directors are appointed by the shareholder to govern and direct GHL’s activities. The

Board is accountable to its shareholder for the financial and non-financial performance of the

Company. The Board does this by setting strategic direction and context and focusing on issues

critical for its successful execution.

While acknowledging their fiduciary responsibilities, the Board has delegated to the Chief

Executive Officer the day-to-day leadership and management of the Company.

Statement of Intent (SOI)

GHL, as a CCTO, must prepare a SOI in accordance with Section 64(1) of the Local Government

Act 2002.

A draft SOI must be submitted to GDC by 1 March with the final SOI being delivered by 30 June

each year, after consultation and consideration of comments from GDC and after the

completion of the annual business plans and budgets.

The Board

The Company’s Constitution provides that the Board will consist of a maximum of nine Directors

(unless the Shareholder determines otherwise). Currently the Board comprises five independent

Directors.

Directors retire and are eligible for re-appointment by rotation in accordance the company’s

constitution. Appointment tenures and re-appointment eligibility criteria are further defined by

GDC’s Board Appointments and Remuneration Policy October 2018. The names of director’s

who are due for retirement or re-appointment are provided to GDC by 31 March each year

prior to the date of appointment or reappointment.

The appointment of directors to the boards of subsidiary companies is subject to Council

approval, except where the directors are already appointed as directors of GHL.

Attachment 20-82.2



Page | 6

The Board is required to appoint a Chairperson annually as per the Company’s Constitution. The

Board also appoints a Deputy Chairperson annually.

Director Induction and Development

Upon appointment to the Board, all new Directors undergo a tailored induction program

appropriate to their experience to familiarise them with GHL’s business and strategy. The

program includes one on-one meetings with management and visits to key Company sites.

Directors are expected to keep themselves informed of changes and trends in the Company’s

business and in the environment and markets in which the Company operates.

All Directors undertake continuous development so that they may appropriately and effectively

perform their duties.

Board Performance Review

The Board reviews its own performance regularly.

Finance and Audit Committee

The Board has established a Finance and Audit Committee to oversee the Company’s financial

reporting processes, internal control systems, and external audit processes.

The Board’s responsibility includes such areas of stewardship as:

• Commercial performance

• Business plans, budgets and the SOI

• Corporate policies including financial, distribution and delegation of authority

• Management oversight and development

• Identification and management of business opportunities and risks

• Integrity of management information systems and internal control

• Compliance with relevant law

• Reporting to shareholders

• Relationships with stakeholders and external parties

8. GROWTH & INVESTMENT STRATEGY

Amended to reflect current strategy and assets held.

GHL’s investment strategy, in keeping with its current portfolio, is to manage a diverse mix of

asset classes and risk profiles, to provide long term income and capital value resilience.

Assets are categorised as:

Core: provide strong capital appreciation and/or sustainable consistent revenue

streams to enable investment through enhanced debt capacity.

Expansion: provide enhanced returns or diversification of revenue streams.

Available for Sale: assets that do not provide an appropriate return and may be

considered for sale.

Strategic: assets owned for the benefit of the wider group.

GHL is looking to grow current activities it owns and operates as well as taking advantage of

other commercial opportunities:

Attachment 20-82.2



Page | 7

1) Tourism – A facility improvements and expansion works program for the Waikanae Beach

Top 10 Holiday Park is proceeding. The aim being to increase accommodation and

activity offerings at the park to grow revenue especially during the shoulder and off-

peak season and to adapt to changing market conditions e.g. freedom camping.

2) Farming – Targeted capital investment to enhance productivity and mitigate the effect

of extreme weather events.

3) Higher value use – GHL owns several individual assets that have historically operated on

a minimum return basis. Options to increase the returns across these assets are being

investigated where the assets are not already subject to management/development

plans.

4) Invest in complimentary activities, increase the offerings of the current activities or invest

in new commercial ventures to grow the commercial side of the business to the level of

farming.

5) Aid capital appreciation through the management of a comprehensive capital works

program.

6) Infrastructure – GHL currently does not have any investment in enabling infrastructure in

the Gisborne region beyond its property assets. An investment in this area would allow

for an alternative long-term income stream beyond its property assets. GHL will be

looking to invest into key regional infrastructure projects should an opportunity present

itself.

9. RISK APPETITE


GHL’s risk appetite is defined by and linked to the performance measures as outlined in the SOI.

While The Board and Management are committed to growing GHL in order to increase returns

to GDC they will also continue to act in a prudent manner.

GHL will proactively manage all risks including strategic, financial, operational, and reputational

risks (including the risk of fraud and/or corruption). GHL will report to and appear before the

GDC Audit and Risk Committee as requested to report on risk management activities,

effectiveness of risk management processes and so forth.

GHL will also proactively report on all significant risks and issues and their management to ensure

no surprises, transparency and that the significant risks are being appropriately managed.

10. PERFORMANCE MEASURES

Amended section heading and updated to include non-financial performance measures as

required under the Local Government Act 2002. Shareholders funds to total assets section has

also been incorporated under this heading.

In line with our growth and investment strategy, risk appetite and distribution targets we are

requesting amendments to the ratios to enable GHL to continue to make sound investment

decisions and grow in order to increase returns to Council.

Financial Targets

• A return on shareholders’ funds ratio of at least 3% (reduced due to the impact of COVID on

the WBHP, delay in starting revenue generating projects and potential decrease in property

values)

Attachment 20-82.2



Page | 8

• A bank debt to bank debt plus equity ratio of no more than 25% (Bank Debt divided by Bank

Debt plus Total Equity)

• A minimum five year rolling average return on investment of 5% distributed to GDC

• An interest coverage ratio of at least times 4.0 (Earnings before interest and tax divided by

financing costs)

• A shareholder funds to total assets ratio of no less than 75% (Total equity divided by Total Assets)

• GHL meets the minimum level of distribution outlined in this SOI.

Shareholders Funds to Total Assets

Shareholders’ funds are defined as the sum of the amount of share capital on issue, retained

earnings/accumulated losses, revenue and capital reserves. Total assets are defined as the sum

of the net book value of current assets, investments, fixed assets, and intangible assets as

disclosed in the company’s Statement of Financial Position, prepared in accordance with the

accounting policies adopted by the Directors.

The target ratio of shareholders’ funds to total assets shall not be less than 75% for the period

covered by this SOI. The appropriateness of this target ratio will be reviewed annually by the

Directors.

Non-Financial Targets

The targets below may be further refined depending on feedback from our external auditor.

GOAL OBJECTIVE MEASURE

Ensure assets are managed

prudently

Assets are maintained/upgraded in

a timely cost-effective manner

A ten year Asset Management plan

is in place

A three year rolling Maintenance

plan is in place

Management and Maintenance

plans are reviewed annually to

ensure maintenance work is being

undertaken and priorities reassessed

as required

Annual budgets reflect

maintenance plans

Ensure GHL are effectively

managing Community Housing on

behalf of GDC

Residents are satisfied with the GHL’s

management of Community

Housing

Operate within parameters set by

GDC

Annual satisfaction survey of 95% or

better

Budgets are adhered to

Ensure the Waikanae Beach Top Ten

Holiday Park is positively contributing

to Tairawhiti’s tourism sector

Customers are satisfied with the

service provided by the park staff

and facilities provided

GRI Index score of 85% or better

Attachment 20-82.2



Page | 9

Ensure land is managed sustainably

and to be a leader in land

stewardship

Land and waterways are managed

in line with best practice

Environmental plans are in place for

each of the three stations and

budgets incorporate annual spend

on measures to implement

improvements required

30m riparian strips are enforced to

better protect watercourses from

the effects of forestry

To make safety our priority and

provide a safe environment

Maximise safety across all divisions

A Health and Safety Calendar and

Annual Improvement Plan are in

place.

Minimum of 10 Health and Safety

Committee meetings held each

year.

Health and Safety Calendar is

reviewed annually and adhered to

The Annual Improvement Plan is

agreed in January each year in

consultation with an independent

Health and Safety provider.

To maximise returns to GDC All assets are fully utilised Maintain 100% occupancy across

the Property portfolio

To be a good employer To be a company people want to

work

Training opportunities provided.

Annual review of salaries to progress

towards our goal of all permanent

staff being paid the living wage.

11. DISTRIBUTIONS TO SHAREHOLDER

Amended to reflect increasing minimum returns rather than constant minimum returns, linked to

ratio’s outlined in Section 9. Figures to be confirmed once budgets are finalised.

The Directors of GHL considered two overriding goals when setting the annual distribution policy:

1. The protection and growth of the asset base of GHL

The amount of the distribution should not limit GHL’s ability to fund future capital expenditure

requirements to both maintain and expand current operations and address issues relating to the

company’s debt structure.

2. The provision of sustainable growth in annual distribution flow to GDC

To give certainty to GDC, GHL will commit to a minimum total annual distribution of $1.8 million,

increasing by 5% for the following two years.

Distribution Policy:

The annual distribution is not discretionary, it is a calculated amount subject to a minimum

distribution of $1.8 million with no maximum cap.

The Annual Tax Paid Distributable Cash Income will be distributed as follows:

Attachment 20-82.2



Page | 10

a) As GHL trading activities except Forestry:

50% of the net tax paid cash income (including Subvention Payments calculated pre-

tax) will be distributed to GDC.

b) As to Forestry:

75% of the net forestry cash distributable income, after deducting capital roading costs,

income tax attributable to forestry income and making provision for the re planting of

the harvested forestry estate, will be distributed to GDC.

c) Distributable Funds will be calculated annually on a cash flow basis only and not

recognise revaluation incomes and losses or depreciation provisions.

And is subject to the following provisos:

1. the Directors are satisfied that the requirements of section 4 of the Companies Act (the

solvency test) have been satisfied.

2. the distributions will be fully imputed for tax purposes to the extent that imputation credits

are available.

3. where subvention payments are paid to GDC the amount of these will be reflected in

the total distributions to GDC.

By retaining a prudent proportion of tax paid cash income will ensure GHL can repay debt and

invest in prudent expansion of its asset base.

If GHL is required to borrow to pay the minimum level of distribution for more than two

consecutive years this Distribution Policy will be reviewed by GHL and GDC to reassess the levels

and causes of the need to borrow.

The distribution is to be paid within nine months after the end of the financial year from when

the distribution was derived.

12. REPORTING TO SHAREHOLDERS

Amended section heading, GDC’s revised Committee structure and Trust Tairawhiti name

change. Updated to incorporate changes as per Letter of Expectation.

The company has adopted 30 June as its balance date.

GHL will comply with all the reporting requirements under the Local Government Act 2002.

Statement of Intent (SOI)

Updated to include final SOI.

The draft SOI delivered to Council on or before the 1 March will be accompanied by a report

detailing any changes from the previous year’s SOI and the directors rational for making those

changes.

The final SOI delivered to Council on or before the 30 June, after consultation and consideration

of comments from GDC.

Interim Report

Attachment 20-82.2



Page | 11

Within two months of the end of the first half of each financial year, the Directors will deliver to

the Shareholder an Interim Report in accordance with Section 66 (Half-yearly report) and

Section 71 (Protection from disclosure of sensitive information) of the Local Government Act

2002. The half yearly report is required to comply with the requirements of NZIAS34 - Interim

Financial Reporting.

The half yearly report shall contain unaudited financial statements and a chairman’s report on

the performance of the group along with any significant issues likely to affect the company’s

performance in the future.

Annual Report

Within three months of the end of each financial year, the Directors will deliver to the

Shareholder an Annual Report in accordance with Section 67 (Annual report), Section 68

(Content of reports on operations of council-controlled organisations), Section 69 (Financial

statements and auditors report) and Section 71 (Protection from disclosure of sensitive

information) of the Local Government Act 2002.

The annual report shall also contain a chairman’s report on the performance of the group along

with any significant issues likely to affect the company’s performance in the future.

GHL will provide audited Annual Accounts to GDC in a timely manner that fulfils Councils Group

reporting requirements, including allowing for reporting to Council.


Through attendance at the Finance and Performance Committee meetings, the company will

work collaboratively with its Shareholder to ensure a “no surprises” relationship in respect of any

significant shareholder matters, to the extent possible in the context of commercial sensitivity

and confidential agreements. The company will, insofar as it is practical and reasonable in the

opinion of the directors, provide the opportunity for comment on such matters prior to taking

any action.

Engagement required ranges from informing and consulting to seeking approval based upon

the Director’s assessment of:

a) Decisions that potentially affect all or a large part of the Gisborne district.

b) Decisions that potentially have a large adverse effect on a specific community,

including the Maori community.

c) Decisions which relate to matters that are of a wide public interest.

d) Decisions which impact on Council’s financial strategy, delivery of the Long Term Plan

and intended levels of service (unless the impact is minor or has been agreed by Council

through the SoI process).


Any matter requiring Council approval will be submitted formally through a written report to the

Finance and Performance Committee, to align with Council’s reporting calendar and the

associated deadlines.

GHL will comply with, and assist Gisborne District Council, at an operational level, in undertaking

a review of services under Section 17A (Delivery of services) of the Local Government Act 2002.

GHL will report to GDC on CCTO establishment opportunities, and other investment opportunities

that have the potential to enhance the economic well-being of the region and provide an

adequate return. The company will also contribute to the best for region project in collaboration

with Gisborne District Council and Trust Tairawhiti, within reasonable commercial return

expectations.

Attachment 20-82.2



Page | 12

13. MAJOR TRANSACTIONS

Updated to incorporate changes as per Letter of Expectation.

The Directors will obtain prior approval, by Gisborne District Council resolution, for any major

transaction. Major transactions are:

1. Sale of land

2. Formation of a subsidiary company or joint venture

3. transactions for the acquisition or disposal of fixed assets, investments and shares where

the value exceeds 10% of the total value of the company’s assets or $10m (whichever is

the lessor) as determined by reference to the most recent financial statements prepared

in terms of this SOI.

4. Long term (15+ years) lessee agreements

Any matter requiring Council approval will be submitted formally through a written report to the

Finance and Performance Committee, to align with Council’s reporting calendar and the

associated deadlines

14. RELATED PARTY TRANSACTIONS

Transactions between GHL and subsidiary companies with GDC will be conducted on a wholly

commercial basis and compensation for any services provided by GHL to GDC will be

conducted on a wholly commercial basis.

GDC will not instruct GHL to act in a non-commercial manner.

Assets transferred to GHL from GDC will be transferred at an independently assessed market

value.

15. TREASURY MANGEMENT


If opportunities to borrow from the Local Government Funding Agency (LGFA) arose, GHL would

ensure its Treasury Management Policy and Lending Policy Covenants aligned to Council’s

policy where applicable. In addition, quarterly written reports would be submitted to GDC’s

Audit and Risk Committee showing conformance to the policy.

16. ESTIMATED COMMERCIAL VALUE OF THE COMPANY

The Directors estimate the commercial value of the shareholders’ investment in each company

in the group to be no less than the shareholders’ funds.

The value ascribed to shareholders’ funds will be that stated in the annual Statement of Financial

Position of the company as at the end of the financial year preceding each SOI.

Attachment 20-82.2



Page | 13

17. ACCOUNTING POLICIES

The financial statements of GHL and its subsidiaries will be prepared in accordance with

Generally Accepted Accounting Practice in New Zealand (NZ GAAP) and the requirements of

the Companies Act 1993. GHL is a for-profit entity for the purposes of complying with NZ GAAP.

The financial statements will be prepared on a historical cost basis except for land and buildings,

available for sale investments, forestry, livestock and emissions units which will be measured at

fair value.

The financial statements will comply with New Zealand equivalents to International Financial

Reporting Standards Reduced Disclosure Regime (NZ IFRS RDR).

The detailed accounting policies are available in our most recent Annual Report, which is

published on our Company website.

18. AUDIT

Ernst & Young, as agent for the Office of the Auditor General (OAG), will undertake the financial

audit of GHL.

Attachment 20-82.2



Page | 14

19. FORECAST FINANCIAL INFORMATION

This section has been updated for the forecasted June 2020 results only. All other figures will be

updated after the completion of the annual business plans and budgets and incorporated into

the final SOI. This will allow GHL to benefit from operational efficiencies by working to one

approved budget. Included in the revised numbers will be capital expenditure in more detail

as requested in the Letter of Expectation. The forecast financial information will split out forestry

and farming and will include a growth/development section to separate the business as usual

budgets from the growth estimates to enable more meaningful reporting.

Summarised group forecast financial statements

Attachment 20-82.2



Page | 15

2019/20 2020/21 2021/22 2022/23

000’s 000’s 000’s 000’s

Forecast Statement of Comprehensive Income

Gross Profit

Tauwhareparae Farms 4,898 4,374 5,000 5,000

Forestry -280 -160 -200 -200

Property Holdings 1,887 2,008 2,050 2,050

Gisborne Vehicle Testing Station 584 777 1,000 1,000

Waikanae Beach TOP 10 Holiday Park 1,423 1,099 1,990 1,990

Developments 0 50 800 965

Total Gross Profit 8,512 8,148 10,640 10,805

Expenditure

Financing Costs 529 596 800 800

Depreciation 714 726 750 750

Other Expenses 4,245 4,206 4,500 4,500

Total Expenditure 5,488 5,528 6,050 6,050

Net Profit / (Loss) before Tax 3,024 2,620 4,590 4,755

Tax 600 600 689 713

Net Profit/ (Loss) After tax 2,424 2,020 3,902 4,042

Forecast Statement of Financial Position

Current Assets 591 591 591 591

Non-Current Assets 124,294 126,906 129,508 132,107

Current Liabilities -18,163 -20,038 -20,105 -20,128

Non-Current Liabilities -6,678 -6,595 -6,529 -6,463

Shareholders Equity 100,044 100,864 103,465 106,107

Attachment 20-82.2



Page | 16

Key Assumptions

1) The farming Revenue for the 2020 to 2022 years will be similar to 2019 full year forecast.

2) The forestry estate will decrease in value over the years due to harvesting. The

decrease will be offset by forest growth in other areas and gains in property valuations.

3) Expenses will be maintained at similar levels to prior years.

4) The current Forestry strategy continues unchanged.

5) Development CAPEX and Income are based on draft business cases, Board approval

may still be pending.

2019/20 2020/21 2021/22 2022/23

000’s 000’s 000’s 000’s

Forecast Statement of Cash Flows

Operating 3,341 3,921 6,033 6,177

Investing -810 -3,400 -3,400 -3,400

Financing -2,132 -2,396 -2,700 -2,800

Net Cash Flow 399 -1,875 -67 -23

Forecast Capital Expenditure

Plant & Equipment 100 100 100 100

Development 70 3,050 1,200 1,200

Vehicles 100 50 150 180

Buildings 540 200 1,950 1,920

Total 810 3,400 3,400 3,400

Forecast Performance Indicators

Return on Shareholder Funds (excluding Subvention) 4% 3% 5% 5%

Interest Coverage Ratio 7 5 7 7

Ratio of Shareholder Funds to Total Assets 80% 79% 80% 80%

Minimum Distribution $1.8m $1.8m $1.9m $2.0m

Attachment 20-82.2



Page | 17

Key Risks and Uncertainties of the group’s main businesses

1) For farming, the key risks are the weather, fluctuations in commodity prices and foreign

exchange variations all of which the company has no control over.

2) For the commercial ventures, the weather, changes in spending habits and/or changes

in government regulations can adversely affect results.

It is not practical to quantify the effect of these risks and uncertainties in specific monetary terms.

These Prospective Financial Statements are likely to vary from the actual financial results for the

periods covered. These variations may be significant and material.

Corporate Information

The Prospective Financial Statements for Gisborne Holdings Limited are for the years ended 30

June 2020 to 30 June 2022. The Prospective Financial Statements have been prepared for

inclusion in the Statement of Intent for the 3 years ended 30 June 2022. It should also be noted

that the information in these statements may not be appropriate for purposes other than

inclusion in the statement of intent.

Other disclosures

The directors authorised the issue of the Prospective Financial Statements and are responsible

for Prospective Financial Statements presented, including the appropriateness of the

assumptions underlying the Prospective Financial Statements and all other required disclosures.

Actual financial results are incorporated for the period 1 July 2019 to 31 December 2019 into the

Prospective Financial Statements for the year ended 30 June 2020.

It is not intended to update the Prospective Financial Statements subsequent to presentation.

Signed R Telfer, GHL Chairman

Dated 27 February 2020

Attachment 20-82.2


Appendix 3: Annual Cycle for Developing the Statement of Intent and Reporting Performance

A1717536 Page 1 of 1

JuneFinal Statement of Intent for GHL is appoved by Council by 30 June

May

Final changes draft SoI are worked through Additional workshops held between F & P Sub-comittee and GHL if required.

April

Draft SoI & Half Year report F & P considers draft SOI

Updated draft SoI to F & P

F & P Sub-committee meet with to workshop SoI

GHL is notified of any further

updates required

January to March

GHL Half Year Report prepared

Due to sharehoders within 2 months after the end of first half of

the financial year

Draft SoI

GHL prepares the draft SOI based on letter of expection due on or

before 1 March

December

Draft Letter of Expectation presented to Finance and Performance Committee (F & P) Approved Letter of Expectation sent to GHL

November

GHL AGMFinance and Performance (F & P) sub-committee brainstorm matters to be

covered in Letter of Expectation.Staff also recommend list of issues and

prepare draft Letter of Expectation

October

Initial engagement between GDC and GHL on the SOI

September

GHL Annual Report presented to Finance & Performance (F&P)

August

GHL preparing annual report

July

Statement of Intent annual cycle begins

Attachment 20-82.3


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