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Notes to, and forming part of, the financial statements

for the year ended 30 June 2005

1) Operating revenue	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
Operating revenue comprises
FRST revenue	27,337	25,616	27,337	25,616
Commercial revenue: New Zealand	17,171	15,996	16,746	15,563
Commercial revenue: International	3,422	3,554	1,398	1,611
	47,930	45,166	45,481	42,790

2) Operating expenses	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
Operating expenses include:
Depreciation of property, plant & equipment:
- Buildings	328	332	328	329
- Other	3,039	2,631	3,034	2,610
Bad debts written off	4	7	4	1
Donations	1	3	1	3
Directors’ fees	163	161	157	147
Auditors’ remuneration:
- Audit New Zealand—audit services	68	59	58	48
- Audit New Zealand—other services	33	-	33	-
Rentals & operating lease costs	665	833	656	827
Employee remuneration	24,748	23,896	24,296	23,569

3) Other income and expenses	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
Interest and other income include:
Dividend revenue—related parties	-	-	90	535
Interest income	19	76	8	56
Gain on disposal of property, plant & equipment	33	33	33	33
Impairment of shares in subsidiary	-	-	(100)	-
Loan to subsidiary written down	-	-	(289)	-

Investment project expenditures include:
Depreciation	-	17	-	17
Intra-company overhead recoveries	17	58	17	58
Rentals and lease costs	-	3	-	3
Staff costs	192	813	192	813
Revenue (credit)	(4)	(4)	(4)	(4)

Shareholding Ministers agreed in 1999 that Landcare Research New Zealand Limited could spend up to $11.8 million in approved investment research projects. As at 30 June 2005, Landcare Research New Zealand Limited has spent a cumulative total of $10.359 million, and will spend a further $250,000 in 2005/06. Investment project expenditures reported in 2003/4 included Commercialisation Project Expenditures totalling $296,000, which are presented within total operating expenses in these financial statements; comparative figures have been restated accordingly.

4) Taxation	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
Reported net surplus/(deficit) before taxation	115	39	(228)	426
Prima facie taxation @ 33%	38	13	(75)	141
Plus/(less) tax effect of:
Permanent differences	102	53	106	(174)
Prior year adjustment	(6)	6	5	(1)
Group loss offset	-	-	87	234
Total income tax expense	134	72	123	200
is represented by:
Current taxation	109	-	-	(1)
Deferred taxation	25	72	123	201
	134	72	123	200
Deferred taxation benefit
Balance at beginning of year	935	1,007	1,033	1,234
Recognised in Statement of Financial Performance	(25)	(72)	(123)	(201)
Balance at end of year	910	935	910	1,033
Tax losses of $279,000 (2004 – $101,000)with a tax effect of $92,000 (2004 – $33,000) have been recognised prior to realisation; subsequent realisation is subject to the requirements of income tax legislation being met.

5) Net cash flow from/(used In) operating activities	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
Surplus/(deficit) after income tax	(19)	(33)	(351)	226
Items classified as investing/financing activities
Gain on sale of non-current assets	(33)	(33)	(33)	(33)
	(33)	(33)	(33)	(33)
Non-cash items
Depreciation	3,367	2,980	3,362	2,956
Amortisation of non-current assets	105	15	-	-
Impairment of non-current assets	-	-	100	-
Decrease in deferred taxation	25	72	123	201
	3,497	3,067	3,585	3,157
Movement in working capital
(Increase)/decrease in inventories	(297)	112	2	3
(Increase)/decrease in receivables & prepayments	(945)	(205)	(730)	(565)
(Increase)/decrease in intragroup loans	-	-	287	-
Increase/(decrease) in creditors, provisions & accruals	146	276	206	436
Increase/(decrease) in revenue in advance	1,075	123	1,139	23
	(21)	306	904	(103)
Net cash from/(used in) operating activities	3,424	3,307	4,105	3,247

6) Receivables	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
Trade debtors	5,247	4,294	4,626	4,019
Accrued income & sundry debtors	758	928	739	664
Owing by subsidiaries	-	-	23	57
Prepayments	586	536	563	533
Income tax paid in advance	112	-	50	-
	6,703	5,758	6,001	5,273

7) Property, plant and equipment	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
Land
At cost	704	695	514	530
Buildings
At cost (reapportioned)	20,229	19,619	19,974	19,448
Accumulated depreciation	(5,243)	(4,337)	(5,197)	(4,306)
	14,986	15,282	14,777	15,142
Other
At cost (reapportioned)	26,088	27,949	25,810	27,779
Accumulated depreciation	(12,028)	(13,399)	(11,862)	(13,256)
	14,060	14,550	13,948	14,523
Total net carrying amount	29,750	30,527	29,239	30,195
Comparative values for 2004 have been restated to reﬂect the results of an exercise to reapportion the cost of buildings plant and fit-out. 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.

8) 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, which transferred to Landcare Research New Zealand Limited, 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.
9) Intangible assets	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
Goodwill
At cost	-	120	-	-
Accumulated amortisation	-	(15)	-	-
	-	105	-	-
Goodwill on Consolidation arose on the purchase of shares in Fertility Control Pty Ltd. That subsidiary has now been liquidated, and the goodwill has been written off.

10) Creditors and borrowings	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
Trade creditors	3,033	3,104	2,789	3,047
Owing to subsidiaries	-	-	181	52
GST and PAYE	860	999	898	969
Sundry creditors & accruals	1,019	1,124	991	1,089
	4,912	5,227	4,859	5,157

11) Bank loans	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
Current	5,499	3,062	5,499	3,062
Non-current	-	4,000	-	4000
	5,499	7,062	5,499	7,062
Landcare Research New Zealand Limited 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—7.60% at balance date.

12) Revenue in advance	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
FRST Public Good Science Funding	1,548	541	1,547	541
FRST Non-Specific Output Funding	298	175	298	175
Commercial contracts	1,051	1,106	895	885
	2,897	1,822	2,740	1,601

13) Equity	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
Equity comprises:
Paid in share capital	8,015	8,015	8,015	8,015
Retained earnings & reserves	14,348	14,341	13,297	13,648
	22,363	22,356	21,312	21,663
Minority interest	-	59	-	-
Total equity	22,363	22,415	21,312	21,663
The issued capital of the company is 8,015,000 shares, fully paid up, and ranking equally.

14) Financial instruments
Credit risk Financial instruments which potentially subject Landcare Research New Zealand Limited 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 of cash. Landcare Research New Zealand Limited 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 New Zealand Limited has minimal currency risk given that financial instruments are transacted principally in New Zealand dollars.

15) Commitments	CONSOLIDATED		PARENT
	2005	2004	2005	2004
	$000s	$000s	$000s	$000s
Capital commitments
Estimated capital expenditure contracted for at balance date but not paid or provided for	802	269	799	164
Operating lease commitments
Lease commitments under non-cancellable operating leases:
within 1 year	418	509	410	503
later than 1 year and not later than 2 years	241	193	241	191
later than 2 years and not later than 5 years	298	270	298	270
later than 5 years	1,554	1,599	1,554	1,599
Other commitments There were no open foreign exchange contracts as at 30 June 2005 (2004: $114,187). Landcare Research New Zealand Limited has a commitment at balance date to capitalise Fertility Control Limited, a subsidiary, to the value of $125,500.

16. Contingent assets and liabilities
The company is not aware of any significant contingent assets or liabilities as at balance date (2004: nil).

17. Related party
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 arm’s length basis. Inter-company transactions between Landcare Research New Zealand Limited and its subsidiaries are transacted on a commercial and arm’s length basis. Landcare Research New Zealand Limited provides management and administration support to Sirtrack Limited, the value of which amounted to $50,600 during the current financial year ($28,000 in 2003/04) and purchased Sirtrack products to the value of $97,000 during the year ($15,000 in 2003/04). Landcare Research New Zealand Limited received dividends totaling $90,000 from Sirtrack Limited during the year ($535,000 in 2003/04). Landcare Research New Zealand Limited revenue includes $113,000 ($98,000 in 2003/04) billed to Fertility Control Pty Limited, and $19,000 billed to Fertility Control Limited. Landcare Research New Zealand Limited has given Landcare Research International Limited a loan of $412,000 to fund its investment in Fertility Control Pty Ltd. $125,500 was repaid when Fertility Control Pty Limited was liquidated and the balance has been written down. Shares held by Landcare Research New Zealand Limited in Landcare Research International Limited of $100,000 have also been considered as impaired and written down. Landcare Research New Zealand Limited has capitalised Landcare Research USA Ltd during the year for a sum of USD 50,000 but the amount has been returned to the parent company pending requirement, and will be paid on request. No transaction between companies within the Landcare Research group took place at nil or nominal value during the year. Material transactions between Landcare Research New Zealand Limited and entities in which directors have declared an interest are transacted and carried out on a commercial and arm’s length basis, and are summarised below, for the year ended 30 June 2005:
	Expenditure	Income
NZ Business Council for Sustainable Development	$12,000	$17,000
Haines NZ Ltd	$52,000	-
Landcare Research New Zealand Limited revenue includes $24.553 million received from FRST (Foundation for Research, Science and Technology). Dr A.J. Pearce, Chief Executive of Landcare Research New Zealand Limited during the year is a Board Member of FRST. Transactions between Landcare Research New Zealand Limited and FRST are carried out on a commercial and arm’s length basis.

18. Segment information
Landcare Research New Zealand Limited operates predominately in one industry sector—the provision of scientific services focusing on the sustainable management of land-based natural resources and biodiversity protection. Its business is conducted predominantly in New Zealand and is therefore in one geographical area for reporting purposes.
19. International Financial Reporting Standards
Landcare Research New Zealand Limited and subsidiary companies will adopt NZ IFRS with effect from 1 July 2007; the first audited NZ IFRS financial statements will cover the period to 30 June 2008, with comparative information for the period commencing 1 July 2006. Landcare Research New Zealand Limited, together with other CRIs, have engaged PricewaterhouseCoopers to provide advice for our IFRS implementation project. They are helping to identify the key accounting and business impacts of adopting NZ IFRS, and prioritise first time adoption options and issues for the necessary action to be taken before 1 July 2006. One potential issue identified to date relates to the valuation of employees’ sick leave benefits. Landcare Research New Zealand Limited has made a submission to ICANZ in respect of ED101. That document proposes that Crown Research Institutes be considered as Public Benefit Entities for IFRS purposes, and the submission justifies that Landcare Research should be considered as a profit-oriented entity.

Statement of responsibility

In terms of Section 42 of the Public Finance Act 1989, we hereby certify that:

We have been responsible for the preparation of these financial statements and the judgements used therein.
We have been responsible for establishing and maintaining a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting.
We are of the opinion that the financial statements of Landcare Research New Zealand Limited fairly reﬂect the financial position and operations for the year ended 30 June 2005.


RGM Fenwick Chairman of Directors	Warren Parker Chief Executive