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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.
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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.
Finance & Performance Committee 27 May 2020 3 of 35
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).
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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.
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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.
Finance & Performance Committee 27 May 2020 6 of 35
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
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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.
Finance & Performance Committee 27 May 2020 8 of 35
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.
Finance & Performance Committee 27 May 2020 9 of 35
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”.
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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
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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”.
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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
Finance & Performance Committee 27 May 2020 13 of 35
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
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.
Significance and Engagement Policy
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
Finance & Performance Committee 27 May 2020 14 of 35
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
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).
e) Decisions which will expose Council to an increased level of risk.
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
Finance & Performance Committee 27 May 2020 15 of 35
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
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
Finance & Performance Committee 27 May 2020 16 of 35
Statement of Intent
2021-2023
Attachment 20-82.2
Finance & Performance Committee 27 May 2020 17 of 35
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
Finance & Performance Committee 27 May 2020 18 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 19 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 20 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 21 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 22 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 23 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
New section to incorporate changes as per Letter of Expectation.
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
Finance & Performance Committee 27 May 2020 24 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 25 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 26 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 27 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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.
Significance and Engagement Policy
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).
e) Decisions which will expose Council to an increased level of risk.
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
Finance & Performance Committee 27 May 2020 28 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
New section to incorporate changes as per Letter of Expectation.
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
Finance & Performance Committee 27 May 2020 29 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 30 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 31 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 32 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 33 of 35
GISBORNE HOLDINGS LTD Statement of Intent for the Three Years Commencing 1 July 2020
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
Finance & Performance Committee 27 May 2020 34 of 35
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
Finance & Performance Committee 27 May 2020 35 of 35