Notes

Notes to Financial Statements
For Year ended 31 March 1998

1998

1997

1998

1997

$000

$000

$000

$000

Group

Parent

1. INTEREST INCOME
From special purpose species fund

338

347

338

347

From general investment funds

529

403

523

396

867

750

861

743

2. AUDITORS REMUNERATION
Audit fees

44

33

40

28

Other services

5

7

5

7

49

40

45

35

3. PROVISION FOR TAXATION
Net surplus before taxation

5,502

3,883

5,596

3,968

Taxation thereon at current rate of 33%

1,816

1,282

1,847

1,309

Adjusted for the effects of:
Permanent differences and non-deductible expenses

18

(31)

18

(31)

Timing differences not expected to reverse

(1,374)

(1,476)

(1,376)

(1,475)

Prior permanent differences

2

34

2

33

Prior timing difference not expected to reverse

169

169

Tax benefit of losses not recognised

(331)

225

(303)

197

Tax benefit of group losses

(57)

Taxation charge

300

34

300

33

The taxation charge is all represented by current taxation.
Cumulative contingent liability for
timing differences:

Timing

Losses

Total

Brought forward

8,633

(225)

8,408

Current year

1,374

331

1,705

Prior year

(169)

(106)

(275)

Total

9,838

Cumulative contingent liability for timing differences from forest valuation:

Cumulative Differences

Taxation Effect

Brought forward

56,901

18,777

Current year

Total

56,901

18,777

The contingent liability in respect of tax effective timing differences not expected to reverse is $9,838,000 (1997 $8,408,000) which is net of any future tax benefit – 1998 nil (1997 $225,000) in respect of tax losses – 1998 nil (1977 $681,000) available to carry forward for offset against future income.  The cumulative contingent liability in respect of deferred tax arising from the revaluation of forests is $18,777,000 (1997 $18,777,000).

1998

1997

Imputation Credit Account

$000

$000

Opening balance

3,777

3,777

Plus tax paid

534

Less tax refunded

(508)

$ 3,803

$ 3,777

4. CAPITAL

Group

Parent

15,000,000 ordinary shares fully paid upAll ordinary shares have equal voting rights and share equally in dividends and distributions on winding up. 15,000 15,000 15,000 15,000

1998

1997

1998

1997

$000

$000

$000

$000

Group

Parent

5. REVALUATION RESERVE
Opening balance

57,525

76,651

57,525

76,651

Revaluation of exotic forest

(23,482)

(23,482)

Revaluation of indigenous forest

3,750

3,750

Revaluation of buildings

96

96

Revaluation of freehold forest land

606

606

57,621

57,525

57,621

57,525

Represented by:
Reserve for exotic forest

42,729

42,729

42,729

42,729

Reserve for indigenous forest

14,172

14,172

14,172

14,172

Reserve for buildings

114

18

114

18

Reserve for freehold forest land

606

606

606

606

57,621

57,525

57,621

57,525

6. ACCOUNTS RECEIVABLE
Trade debtors

3,872

2,814

3,830

2,729

Pre-payments

1,101

1,128

1,091

1,118

Inter company

26

15

4,973

3,942

4,947

3,862

7. INVENTORY
Logs and processed timber

442

849

442

849

Sphagnum moss

109

205

551

1,054

442

849

8. ACCOUNTS PAYABLE
Trade creditors

3,308

2,693

3,231

2,567

Inter company

21

Employees entitlements

238

288

236

285

Payables to related parties

66

109

66

109

3,612

3,090

3,554

2,961

9. FIXED ASSETS
Non-forest land

24

24

Buildings

1,228

1,131

799

700

Accumulated depreciation

279

215

190

138

949

916

609

562

Furniture, fittings, office equipment

1,067

1,046

1,022

1,000

Accumulated depreciation

614

555

587

530

453

491

435

470

Plant & machinery

656

489

397

237

Accumulated depreciation

239

249

81

101

417

240

316

136

Motor Vehicles

1,508

1,686

1,422

1,568

Accumulated depreciation

469

511

438

467

1,039

1,175

984

1,101

2,882

2,846

2,344

2,269

Except for leasehold improvements which are stated at cost, buildings on hand at balance date are stated at net current value as determined by an independent registered valuer, Coast Valuations Ltd, as at 15 January 1998.

1998

1997

$000

$000

10. SPECIAL PURPOSE SPECIES FUND

Group & Parent

Opening balance

4,143

4,493

Interest earned

338

347

Less development payments

(668)

(697)

3,813

4,143

These funds are held on deposit for various periods and will be applied to meeting development costs of the special purpose species forest.
11. EXOTIC FOREST
Opening balance

82,106

99,783

Capitalisation of forestry expenditure during the period

4,299

5,156

Forest land purchased during the period

206

43

Revaluation of forest during the period

(23,482)

Revaluation of land during the period

606

86,611

82,106

Forest at valuation

83,062

78,765

Forest land at valuation

3,549

3,341

86,611

82,106

The exotic forest estate has been independently valued at 31 March 1998 by Alan Bell & Associates, Forest Consultants, by discounting the future post-tax cash flows arising from the exotic estate at 8.00% per annum. As this valuation is not materially different from the book value of the forests as at 31 March 1998, the directors have decided to make no revaluation adjustment. The realisation values have been derived as follows:
For domestic sales – a rolling average of actual domestic selling prices over the last three years.
For export sales – a rolling average of independently assessed export prices over the last three years.
Freehold forest land on hand at balance date is stated at net current value, except for land purchased during the period which is recorded at cost, as determined by an independent registered valuer R W Baxendine ANZIV, of the firm Gowans Valuation Ltd as at 10 March 1997.
12. SPECIAL PURPOSE SPECIES FOREST
Opening balance

2,433

1,826

Capitalisation of current year’s costs

250

763

Less write off of suspensory loan

(160)

(156)

2,523

2,433

Under an agreement with the Crown dated 18 June 1993 the Company has agreed to plant up to 10,000 hectares of Special Purpose Species on specifically designated land.The cost of planting less the suspensory loan allocated is capitalised in line with the accounting policy for forest assets. The area planted to date is 2,692 hectares.
13. INDIGENOUS FOREST
Opening balance

14,172

10,422

Revaluation during the period

3,750

14,172

14,172

The Company’s harvesting rights for podocarp forests have been valued by discounting budgeted future post-tax cash flows from the forests at 8.00% per annum. Cash flows arising from the Company’s harvesting rights for hardwood forests have not been valued due to present uncertainty over the timing and value of the net cash flows from these forests. As this valuation is not materially different from the book value of the forests as at 31 March 1998, the directors have decided to make no revaluation adjustment.
On May 5 1998 the Government announced it was reviewing the company’s present rights under the 1986 West Coast Accord to harvest rimu from the Buller region on a non-sustainable basis until 31 December 2006. As no decision has yet been made it is inappropriate to adjust the value of rimu harvesting rights in the statement of financial position at 31 March 1998.

1998

1997

1998

1997

$000

$000

$000

$000

Group

Parent

14. INVESTMENTS
Shares in an unlisted company

175

139

175

139

Purchase price of subsidiary

270

270

175

139

445

409

The only subsidiary of Timberlands West Coast Ltd is New Zealand Sphagnum Exports Ltd which is 100% owned. The principal activity is the processing and exporting of sphagnum moss.New Zealand Sphagnum Exports Ltd.’s balance date is 31 March.

The directors have resolved to sell New Zealand Sphagnum Exports Ltd. This process is expected to be completed during the next financial year.

1998

1997

$000

$000

Group & Parent

15. SUSPENSORY LOAN
Opening balance

4,912

5,087

Transferred to income

(181)

(175)

4,731

4,912

The suspensory loan is interest free and is allocated to income as and when areas designated for special purpose species planting have been planted.
16. REMUNERATION OF DIRECTORS
Under the Constitution, directors’ remuneration is determined each year by the shareholders. The total remuneration paid during the period to directors was:
W C Young

36

38

A J Urlwin

22

23

C A Coyte

18

19

G T Bloomfield

17

G Williams

9

R Boyack

3

J F S Baldwin

18

94

109

Directors’ remuneration includes fees only.No other form of remuneration has been paid during the period.
17. EMPLOYEE REMUNERATION
The number of employees (not including directors) where remuneration and all other benefits was within the specified bands for the year ended 31 March was:
$100,001 to $110,000

1

$120,001 to $130,000

2

$130,001 to $140,000

2

$170,001 to $180,000

1

$180,001 to $190,000

1

Executive remuneration includes salary, employer’s contributions to superannuation and medical schemes and sundry benefits received in their capacity as employees.
18. RELATED PARTY TRANSACTIONS
Timberlands West Coast Ltd is directly owned by the Crown and during the course of the year had a number of dealings with Government departments and Crown agencies which were carried out in the normal course of business on commercial terms. Material related parties are as follows:
a. The Crown
Timberlands West Coast Ltd was charged royalties by the Crown of $165,384 (1997 $150,773). During the period the Crown also wrote off $180,407 (1997 $175,330) of the Suspensory Loan detailed in Note 15. At year end Timberlands West Coast Ltd owed $74,819 (1997 $108,991) to the Crown for unpaid royalties. These are due for repayment within two months of balance date.
b. Land Information of New Zealand Ltd
The Crown also charges Timberlands West Coast Ltd an annual forest licence fee. The charge for this period is $1,317,990 (1997 $1,317,990) and is paid to Land Information of New Zealand Ltd.
There were no other amounts outstanding at balance date relating to these transactions. No related party debts have been written off or forgiven during the year.

1998

1997

$000

$000

Group & Parent

19. LEASE COMMITMENTS
Lease commitments under non-cancellable operating leases
Not later than one year

83

88

Later than one year & not later than two years

82

83

Later than two years & not later than five years

184

266

Later than five years

349

437

1998

1997

1998

1997

$000

$000

$000

$000

Logs

Sphagnum moss

20. SEGMENT INFORMATION
Segment sales revenue

25,762

24,344

1,637

2,738

Segment surplus before interest and tax

5,596

3,968

(91)

(82)

Segment term assets

118,553

112,759

896

1050

Group

Group sales revenue

27,399

27,082

Group surplus before interest and tax

5,505

3,886

Unallocated expenses and tax

303

37

Net surplus after tax

5,202

3,849

Group assets

119,449

113,809

The Group is involved in the development, management and harvesting of logs and sphagnum moss on the West Coast of the South Island of New Zealand.
1998 1997 1998 1997
21. FINANCIAL INSTRUMENTS $000 $000 $000 $000
FAIR VALUES Group Parent
The carrying amount is considered to be equivalent to the fair value for cash, short term investments, accounts receivable, accounts payable, suspensory loan and the special purpose species fund.
Foreign currency
Forward exchange contracts:
Amount receivable 218 88
Amount payable (211) (87)
Net fair value 7 1
CREDIT RISK
Financial instruments which potentially subject Timberlands West Coast Ltd and its subsidiary to credit risk principally consist of cash, short term investments, trade debtors, special purpose species fund, forward exchange contracts and unconfirmed letters of credit.Timberlands West Coast Ltd places its cash and short term investments with major financial institutions within New Zealand.
Timberlands West Coast Ltd completes credit evaluations on all customers requiring credit and has performance bonds in place for a significant number of customers to reduce credit exposure on trade debtors.

1998

1997

$000

$000

Group & Parent

The maximum exposure for unconfirmed letters of credit is as follows (in $NZ):
Bills accepted under an unconfirmed letter of credit

39

36

The maximum credit exposure for cash, short term investments, accounts receivable and the special purpose species fund are considered to be the carrying amount and fair value as shown above.
CURRENCY RISK
The notional principal or contract amounts outstanding at 31 March for instruments that carry a currency risk are as follows:
Foreign currency forward exchange contracts

211

87

Overseas commodity sales for stock not yet allocated

141

174

Foreign currency contracts are entered into to hedge overseas sales.

1998

1997

1998

1997

$000

$000

$000

$000

Group

Parent

CONCENTRATION OF CREDIT RISK
36% (1977 19%) of Timberlands West Coast Ltd.’s trade debtors are due from one customer. The receivable is considered to be fully recoverable.
INTEREST RATE RISK
The special purpose species fund contains investments which mature between one month and five years. The interest rate on these investments is fixed and ranges from 7.7% to 10.0% (1997 7.2% to 9.6%).
22. RECONCILIATION WITH REPORTED OPERATING SURPLUS
Reported surplus after taxation

5,202

3,849

5,296

3,935

Add non-cash items:
Depreciation & amortisation

454

522

407

467

Loss (profit) on sale of fixed assets

38

34

21

33

Shares in investment in lieu of cash rebate

(36)

(139)

(36)

(139)

Add (less) movements in other working capital items:
Decrease (increase) in accounts receivable

(1,042)

(208)

(1,085)

(259)

Increase (decrease) in accounts payable

530

(48)

572

(59)

Decrease (increase) in inventory

503

(223)

407

(287)

Decrease (increase) in deferred expenditure

(59)

(53)

(59)

(53)

Decrease (increase) in taxation

274

34

274

33

Net cash flows from operating activities

5,864

3,768

5,797

3,761

23. TREATY OF WAITANGI
The agreement by which the company purchased the assets from the Crown recognises potential land claims that may be lodged under the Treaty of Waitangi Act 1975.However, under the Treaty of Waitangi (State Enterprises) Act 1988, the company will be compensated by the Crown for any loss that occurs upon the resumption of any interest in assets by the Crown.
24. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS
The company has been subject to an investigation of its tax records by the Inland Revenue Department. There is one significant matter outstanding relating to a suspensory loan received from the Crown. At balance date no assessment had been issued by the Inland Revenue Department in this regard.
Except for the contingent liabilities as disclosed in these accounts there are no other contingent liabilities at balance date.
There are no capital commitments at balance date other than the contractual commitment to plant up to 10,000 hectares of special purpose species as disclosed in note 12.