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Notes to, and forming part of, the financial statements

1) Revenue				CONSOLIDATED		PARENT
1) Revenue				2004 $000s	2003 $000s		2004 $000s	2003 $000s

FRST revenue				25,616	26,454		25,616	26,454
Commercial revenue: New Zealand				15,996	12,530		15,563	11,980
Commercial revenue: International				3,554	3,694		1,611	1,680
Total revenue				45,166	42,678		42,790	40,114

2) Net surplus before taxation				CONSOLIDATED		PARENT
2) Net surplus before taxation				2004 $000s	2003 $000s		2004 $000s	2003 $000s

Has been derived after crediting:
	Interest earned			76	343		56	342
	Dividend received			-			535	420
	Capital gains			33			33
And after deducting:
	Audit fees				52		48	47
	Bad debts written off/(recovered)			7	4		1	4
	Depreciation	– buildings		332	372		329	369
		– other		2,631	2,562		2,610	2,546
	Donations			3	18		3	18
	Directors’ fees			161	134		147	134
	Interest paid			186	2		186	2
	Provisions for doubtful debts (written back)			-	(4)		-	(4)
	Rentals and lease costs			829	883		823	876
	Staff costs			23,612	22,214		23,285	21,927
And after deducting investment and commercialisation project expenditures:
	Total			1,506	4,118		1,472	4,118
	including:
	Depreciation			17	45		17	45
	Intra-company overhead recoveries			66	225		66	225
	Rentals and lease costs			7	3		7	3
	Staff costs			1,097	2,601		1,097	2,601
	Revenue (credit)			(4)	(48)		(4)	(48)

3) Taxation				CONSOLIDATED		PARENT
3) Taxation				2004 $000s	2003 $000s		2004 $000s	2003 $000s

Reported net surplus/(deficit) before taxation				39	(315)		426	(589)
Prima facie taxation @ 33%				13	(104)		141	(194)
Plus/(less) tax effect of:
	Permanent differences	–non-assessable items		(13)	(1)		(190)	(139)
		– non-deductible items		66	26		16	27
		– Prior year adjustment		6	1		(1)	1
Group loss offset				-	-		234	169
Taxation expense/(credit) in statement of financial performance				72	(78)		200	(136)
Taxation expense/credit is represented by:		– current tax		-	1		(1)	1
		– deferred tax benefit		72	(79)		201	(137)
				72	(78)		200	(136)
Deferred taxation benefit:
Opening balance				1,007	930		1,234	1,098
Under/(over) provision				-	(2)		-	(1)
Plus current year’s movement				(72)	79		(201)	137
				935	1,007		1,033	1,234

Tax losses of $101,000 (2003 – $913,000) with a tax effect of $33,000 (2003 – $301,000) have been recognized prior to realisation; subsequent realisation is subject to the requirements of income tax legislation being met.

4) Reconciliation of net surplus after taxation with net cash flows from operating activities				CONSOLIDATED		PARENT
				2004 $000s	2003 $000s		2004 $000s	2003 $000s

Net surplus/(deficit) after tax				(33)	(237)		226	(453)
Capital gain shown as investing activity				(33)	-		(33)	-
add back depreciation				2,980	2,979		2,956	2,960
Amortisation of goodwill				15	-		-	-
(Increase)/decrease in deferred taxation				72	(76)		201	(136)
Movement in working capital items		– Interest yayable		17	-		17	-
		– Interest receivable		13	60		13	60
		– Debtors and prepayments		(218)	(1,010)		(578)	(606)
		– Stock and work in progress		112	12		3	4
		– Creditors and accruals		984	500		1,130	383
		– Provision for staff liabilities		(724)	306		(711)	305
		– Revenue in advance		123	(345)		23	(354)
Net cash flows from operating activities				3,308	2,189		3,247	2,163

5) Library assets,national databases and reference collections
The Crown, when establishing Crown Research Institutes in 1992, transferred various national databases and reference collections to individual Institutes at nil value. Many of these databases and collections were specifically identified by the Foundation for Research, Science and Technology as being of significant national importance, and they have covenants attaching to them restricting an Institute’s ability to deal with them. The national databases and reference collections that transferred to Landcare Research are listed in Appendix II to the company’s Statement of Corporate Intent. For the purposes of these financial statements the assets are recorded at their nil transfer value, as Wareham Cameron + Co (professional valuers), have confirmed that they consider there is currently no reliable basis for a valuation to be undertaken of these assets. A rare books collection, previously considered to be part of the reference collections, was introduced in 2002/03 on a market value basis, under the transitional provisions for FRS-3.

6) Equity comprises				CONSOLIDATED		PARENT
6) Equity comprises				2004 $000s	2003 $000s		2004 $000s	2003 $000s

Share capital				8,015	8,015		8,015	8,015
Retained earnings & reserves				14,341	14,356		13,648	13,422
Attributable to parent company shareholders				22,356	22,371
Minority interest in subsidiary company				59	-
				22,415	22,371		21,663	21,437
The issued capital of the company is 8,015,000 shares, fully paid up, and ranking equally.

7) Debtors and prepayments				CONSOLIDATED		PARENT
7) Debtors and prepayments				2004 $000s	2003 $000s		2004 $000s	2003 $000s
Trade debtors				4,294	4,647		4,019	3,878
Accrued income and sundry debtors				928	483		664	370
Intercompany debtors				-	-		57	43
Prepayments				536	423		533	417
				5,758	5,553		5,273	4,708

8) Fixed assets and patents				Land	Building		Other	Total
				(incl Patents)
				$000s	$000s		$000s	$000s

	Consolidated	2004	Cost	695	25,042		22,547	48,284
			Accumulated depreciation	-	(2,760)		(14,976)	(17,736)
			Net book value	695	22,282		7,571	30,548
		2003	Cost	697	15,990		20,411	37,098
			Accumulated depreciation	-	(2,437)		(13,483)	(15,920)
			Net book value	697	13,553		6,928	21,178
	Parent	2004	Cost	530	24,871		22,377	47,778
			Accumulated depreciation	-	(2,729)		(14,833)	(17,562)
			Net book value	530	22,142		7,544	30,216
		2003	Cost	530	15,864		20,262	36,656
			Accumulated depreciation	-	(2,410)		(13,359)	(15,769)
			Net book value	530	13,454		6,903	20,887
The Directors are of the opinion that net book value of land and buildings represents the fair value of those assets. Land and buildings may not be sold without receiving permission from the Crown.

9) Creditors and accruals				CONSOLIDATED		PARENT
9) Creditors and accruals				2004 $000s	2003 $000s		2004 $000s	2003 $000s

Trade creditors				3,104	2,750		3,047	2,682
GST and PAYE 999 542 969 528				999	542		969	528
Intercompany creditors				-	-		52	-
Sundry creditors and accruals				1,124	1,166		1,089	1,032
				5,227	4,458		5,157	4,242

10) Revenue in advance				CONSOLIDATED		PARENT
10) Revenue in advance				2004 $000s	2003 $000s		2004 $000s	2003 $000s

FRST Public Good Science Funding				541	374		541	374
Non-Specific Output Funding				175	75		175	75
Commercial contracts				1,106	1,250		885	1,129
				1,822	1,699		1,601	1,578

11) Borrowings
Landcare Research has entered into a credit facility for a total of $8 million. $4 million is fixed at 6.83% for two years until 30 January 2006. The balance is charged interest at a variable rate — 6.35% at balance date.

12) Financial instruments
Credit risk		Financial instruments that potentially subject Landcare Research to credit risk principally consist of bank balances, short term deposits, and accounts receivable. The maximum exposure to credit risk at balance date is the fair value of the financial instrument as stated in the Statement of Financial Position. Significant concentrations of credit risk apply principally in respect to cash. Landcare Research reduces this risk by investing with high credit rating institutions.
Fair values		The fair value of financial instruments is equivalent to the carrying amount as stated in the Statement of Financial Position.
Currency risk		Landcare Research has minimal currency risk given that financial instruments are transacted principally in New Zealand dollars.

13) Commitments				CONSOLIDATED		PARENT
13) Commitments				2004 $000s	2003 $000s		2004 $000s	2003 $000s

Capital commitments
Estimated capital expenditure contracted for at balance date but not paid or provided for				269	325		164	325

Operating lease commitments
Lease commitments under non-cancellable
– operating leases within 1 year				509	618		503	613
– later than 1 year and not later than 2 years				193	195		191	190
– later than 2 years and not later than 5 years				270	256		270	253
– later than five years				1,599	1,645		1,599	1,645
Other commitments Landcare Research has entered into foreign exchange forward purchase contracts to the value of $114,187 that will mature within six months of balance date. (2003: $108,280)

14) Contingent assets and liabilities
The company is not aware of any significant contingent assets or liabilities as at balance date. (2003: nil)

15) Related party transactions
The ultimate shareholder of the company is the Crown. The company undertakes many transactions with other CRIs, Government Departments and Crown Agencies. These transactions are carried out on a commercial and arms length basis. Inter-company transactions between Landcare Research and its subsidiaries are transacted on a commercial and arms length basis. Landcare Research provides management and administration support to Sirtrack Limited the value of which amounted to $28,000 during the current financial year ($28,000 in 2002/3) and purchased Sirtrack products to the value of $15,000 during the year ($47,000 in the previous year). Landcare Research received dividends totaling $535,000 from Sirtrack Limited during the year ($420,000 in 2002/3). Landcare Research revenue includes nil ($291,000 in 2002/3) billed to Landcare Research International Limited, and $98,000 (nil in 2002/3) billed to Fertility Control Pty Limited. Landcare Research has given Landcare Research International Limited a loan of $412,000 to fund its investment in Fertility Control Pty Ltd. No related party debts were written off or forgiven, and no transaction took place at nil or nominal value. Transactions between Landcare Research and entities in which directors have declared an interest are transacted and carried out on a commercial and arms length basis, and are summarised below, for the year ended 30 June 2004 :

				EXPENDITURE			INCOME
Lincoln University				$239,000			$358,000
Solid Energy							$ 48,000
Transpower							$ 30,000
Living Earth							$ 14,000
NZ Business Council for Sustainable Development				$ 11,000			$ 32,000
Bioethics Council							$ 32,000
Denise Church (Consultancy)				$ 9,000

Landcare Research revenue includes $23.153 million PGS&T received from FRST (Foundation for Research, Science and Technology). Dr A.J. Pearce, Chief Executive of Landcare Research is a Board Member of FRST. Transactions between Landcare Reasearch and FRST are carried out on a commercial and arms length basis.

16) Segment information
Landcare Research operates predominately in one industry sector — the provision of scientific services focusing on the sustainable management of land based natural resources. Its business is conducted predominantly in New Zealand and is therefore in one geographical area for reporting purposes.

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