Notes to, and forming part of, the financial statements

for the year ended 30 June 2006

1 Operating Revenue Consolidated   Parent
2006 2005   2006 2005
$000s $000s   $000s $000s
  Operating revenue comprises:      
    Sales revenue:        
    FRST/MoRST revenue 28,021 27,337   28,021 27,337
    Commercial revenue: NZ 18,470 17,171   17,962 16,746
    Commercial revenue: International 5,125 3,422   1,540 1,398
    51,616 47,930   47,523 45,481
             
2 Operating Expenses Consolidated   Parent
2006 2005   2006 2005
$000s $000s   $000s $000s
  Operating expenses include:          
    Depreciation of property, plant and equipment:          
    - Buildings 428 328   419 328
    - Other 2,864 3,039   2,809 3,034
    Bad debts written off 3 4   - 4
    Donations 1 1   1 1
    Directors’ fees 193 163   166 157
    Auditors’ remuneration:      
    - Audit New Zealand – audit services 97 68   72 58
    - Audit New Zealand – other services  1 33   1 33
    Rentals and operating lease costs 687 665   668 656
    Employee remuneration 25,322 24,261   24,490 23,809
             
3 Other Income and Expenses Consolidated   Parent
2006 2005   2006 2005
$000s $000s   $000s $000s
  Interest and other income include:          
    Dividend revenue – related parties                         - -   - 90
    Interest income 38 19   56 8
    Gain on disposal of property, plant and          
     equipment - 33   - 33
    Impairment of shares in subsidiary - -                      (100)
    Loan to subsidiary written down - -   289 (289)
             
  Investment project expenditures include:          
    Intra-company overhead recoveries 7 17   7 17
    Staff costs 88 192   88 192
    Revenue (credit) -     - (4)
 
Shareholding Ministers approved in 1999 that Landcare Research New Zealand Limited could spend up to $11.8 million in approved investment research projects. As at 30 June 2006, with all projects now concluded, Landcare Research New Zealand Limited has spent a cumulative total of $10.545 million.
     
  Commercialisation project expenditures include:  
    Intra-company overhead recoveries 3 - 3 -
    Staff costs 614 487   614 487
    Revenue (credit) (157) (105)   (157) (105)
 
Commercialisation project expenditures were reported in Total Operating Expenses in the 2005 Financial Statements.
             
4 Taxation Consolidated   Parent
2006 2005   2006 2005
$000s $000s   $000s $000s
  Reported net surplus/(deficit) before taxation  783 115   352 (228)
             
  Prima facie taxation @ 33% 258 38   116 (75)
  Plus/(less) tax effect of:      
    Permanent differences 70 102   46 106
    Prior year adjustment (185) (6)   (172) 5
    Group loss offset -       -   88 87
  Total income tax expense 143 134   78 123
   is represented by:        
    Current taxation 65 109   - -
    Deferred taxation 78 25   78 123
    143 134   78 123
  Deferred taxation benefit:          
  Balance at beginning of year 910 935   910 1,033
  Recognised         
  in the Statement of Financial Performance (78) (25)   (78) (123)
  Balance at end of year 832 910   832 910
 
Tax losses of $338,000 (2005 – $279,000) with a tax eff ect of $112,000 (2005 – $92,000) 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
2006 2005   2006 2005
$000s $000s   $000s $000s
  Surplus/(deficit) after income tax 640 (19)   274 (351)
  Items classified as investing/financing activities          
  Gain on sale of non-current assets - (33)   - (33)
    - (33)   - (33)
  Non-cash items        
  Depreciation 3,292 3,367   3,228 3,362
  Amortisation of non-current assets - 105   - -
  Impairment of non-current assets - -   11 100
  Decrease in deferred taxation 78 25   78 123
    3,370 3,497   3,317 3,585
  Movement in working capital      
   (Increase)/decrease in inventories (153) (297)   6 2
  (Increase)/decrease in receivables and prepayments (1,723) (945)   (1,750) (730)
  (Increase)/decrease in intragroup loans - -   - 287
  Increase/(decrease) in creditors, provisions and accruals 288 146   (169) 206
  Increase/(decrease) in revenue in advance 868 1,075   784 1,139
    (720) (21)   (1,129) 904
  Net cash from/(used in) operating activities  3,290 3,424   2,462 4,105
             
6 Receivables Consolidated   Parent
2006 2005   2006 2005
$000s $000s   $000s $000s
  Trade debtors 5,731 5,247   4,990 4,626
  Accrued income and sundry debtors 1,891 758   1,890 739
  Owing by subsidiaries  - -   96 23
  Prepayments 658 586   608 563
  Income tax paid in advance 146 112   31 50
    8,426 6,703   7,615 6,001
             
7 Property, Plant and Equipment Consolidated   Parent
2006 2005   2006 2005
$000s $000s   $000s $000s
  Land          
  At cost 709 704   519 514
             
  Buildings          
  At cost (reapportioned) 20,911 20,229   20,655 19,974
  Accumulated depreciation (5,671) (5,243)   (5,617) (5,197)
    15,240 14,986   15,038 14,777
             
  Other          
  At cost (reapportioned) 28,374 26,088   27,970 25,810
  Accumulated depreciation (14,478) (12,028)   (14,261) (11,862)
    13,896 14,060   13,709 13,948
             
  Total net carrying amount 29,845 29,750   29,267 29,239
   
  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 FRST 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 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. This value has been accepted as deemed cost.

             
9 Patents and Intellectual Property Consolidated   Parent
2006 2005   2006 2005
$000s $000s   $000s $000s
  Patents & IP:        
  At cost 136 26   35 26
  Accumulated amortisation (5) -   - -
    131 26   35 26
             
10 Creditors and Borrowings Consolidated   Parent
2006 2005   2006 2005
$000s $000s   $000s $000s
  Trade creditors 3,006 3,033   2,556 2,789
  Owing to subsidiaries - -   144 181
  GST & PAYE 713 860   720 898
  Sundry creditors and accruals 996 1,019   911 991
    4,716 4,912   4,331 4,859
             
11 Bank Loans Consolidated   Parent
2006 2005   2006 2005
$000s $000s   $000s $000s
  Current 1,217 5,499   1,217 5,499
  Non-current 4,000 -   4,000 -
    5,217 5,499   5,217 5,499
 
Landcare Research NZ Limited has entered into a credit facility for a total of $8 million. $4 million is fi xed at 7.79% for 2 years until 29 January 2008. The balance is charged interest at a variable rate – 8.10% at balance date.
             
12 Revenue in Advance Consolidated   Parent
2006 2005   2006 2005
$000s $000s   $000s $000s
  FRST Public Good Science Funding 1,624 1,548   1,624 1,547
  MoRST Capability Funding 325 298   325 298
  Commercial contracts 1,817 1,051   1,575 895
    3,765 2,897   3,524 2,740
             
13 Equity Consolidated   Parent
2006 2005   2006 2005
$000s $000s   $000s $000s
  Equity comprises:          
  Paid in share capital 8.015 8.015   8.015 8.015
  Retained earnings & reserves 15,004 14,348   13,571 13,297
    23,019 22,363   21,586 21,312
  Minority interests 12 -   - -
  Total equity 23,031 22,363   21,586 21,312
   
  The Issued Capital of the company is 8,015,000 shares, fully paid up, and ranking equally.
             
14 Financial Instruments
 

Credit risk

Financial instruments that 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 exposure to currency risk as a result of certain financial instruments transacted in foreign currencies, arising from normal trading activities. The balances held in bank accounts denominated in foreign currencies are subject to a policy maximum.

             
15 Commitments: Consolidated   Parent
2006 2005   2006 2005
$000s $000s   $000s $000s
  Capital commitments        
  Estimated capital expenditure contracted for   
  at balance date but not paid or provided for 148 802   148 799
             
  Operating lease commitments      
  Lease commitments under non-cancellable    
  operating leases within 1 year 521 418   516 410
  later than 1 year and not later than 2 years 301 241   295 241
  later than 2 years and not later than 5 years  244 298   237 298
  later than 5 years 1,510 1,554   1,510 1,554
 

Other commitments
There were no open foreign exchange contracts as at 30 June 2006 (2005– nil).
Sirtrack Limited has entered into an agreement for $700,000 + GST to purchase land yet to be subdivided. The agreement is conditional
upon the scheme being approved by the relevant authority.
             
16 Contingent Assets and Liabilities
 

The company is not aware of any signifi cant contingent assets or liabilities as at balance date (2005– nil).
 
17 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 arm’s length basis.

Intercompany 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 $34,100 during the current financial year ($50,600 in 2004/05). Landcare Research New Zealand Limited commercial revenue includes $20,000 billed to Sirtrack Limited during the year (nil in 2004/05), and operating costs include purchases of Sirtrack Limited products to the value of $113,000 during the year ($97,000 in 2004/05). Landcare Research New Zealand Limited received no dividends from Sirtrack Limited during the year ($90,000 in 2004/05), but did receive Interest totalling $25,000 (nil in 2004/05). The intercompany balance owing by Sirtrack Limited to Landcare Research New Zealand Limited is $96,000 at 30 June 2006 ($110,000 owed to Sirtrack Limited at 30 June 2005).

Shares held by Landcare Research New Zealand Limited in Landcare Research International Limited of $400,000 have been considered as impaired and written down ($100,000 in 2004/05). The intercompany balance owing by Landcare Research New Zealand Limited to Landcare Research International Limited is $4,000 at 30 June 2006 (nil at 30 June 2005).

The intercompany balance owing by Landcare Research New Zealand Limited to Fertility Control Limited is $68,000 at 30 June 2006 ($23,000 owed by Fertility Control Limited at 30 June 2005).

Landcare Research New Zealand Limited has capitalised Landcare Research US Limited for a sum of US $50,000, but the amount has been held by the parent company pending requirement, and will be paid out on request. The intercompany balance owing by Landcare Research New Zealand Limited to Landcare Research US Limited is $71,000 at 30 June 2006 ($71,000 at 30 June 2005).

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 2006.

Expenditure Income
Meridian Energy Limited $23,000 $66,000
NZ Business Council for Sustainable Development $16,000 $17,000
Haines NZ Ltd $23,000 -
Living Earth Limited - $15,000
 
18 Segment Information
 

Landcare Research New Zealand Limited operates predominantly 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.

 
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, engaged Price Waterhouse Coopers to provide advice for our IFRS implementation project. They have helped to identify the key accounting and business impacts of adopting NZ IFRS, and to prioritise first- time-adoption options and issues for the necessary action to be taken.

We have received the Auditor-General’s confirmation of our status as a Profit Oriented Entity. Confirmation of the parent company’s status as a Profit Oriented Entity means that there will be no distinction between the IFRS accounting policies of Landcare Research New Zealand Limited, and its various subsidiaries, especially Sirtrack Limited.

We will complete an exercise to restate the 2006 Balance Sheet in IFRS terms by November 2006.

Issues that may need to be addressed before then relate to:

  • the valuation of employees’ sick leave and long-service benefits
  • the treatment and valuation of property partly leased to third parties
  • the treatment and valuation of subsidiary companies in parent company books
  • potentially onerous reporting disclosures and relevant compliance costs
  • methodology for assessing impairment in property, plant & equipment, intangible assets and financial assets.

No estimate has yet been made to quantify the impact of International Financial Reporting Standards on the equity, assets and liabilities, revenue and expenditures of Landcare Research New Zealand Limited.
 

Statement of Responsibility

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

  1. We have been responsible for the preparation of these financial statements and the judgements used therein.
  2. 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.
  3. We are of the opinion that the financial statements of Landcare Research New Zealand Limited fairly reflect the financial position and
Signed Rob Fenwick
Chairman of Directors
23 August 2006

 Signed Warren Parker
Chief Executive
23 August 2006

Annual Report 2005/06