Annual Report 2018 - NOIC · ANNUAL REPORT 2018 6 Chairperson’s report It is my privilege to present you with the annual report of the North Otago Irrigation Company Limited for

Annual Report 2018

CONTENTS

1 Our performance at a glance

2 Our progress – a history of NOIC

3 Our work

4 Our responsibilities

6 Chairperson’s Report

8 ChiefExecutiveOfficer’sReport

10 Company Directory

11 Directors’ Report

12 Directors’ Responsibility Statement

13 Independent Auditor’s Report

16 Financial Statements:

Statement of Comprehensive Income

Statement of Changes in Equity

Statement in Financial Position

Statement of Cash Flows

20 Notes to the Financial Statements

Delivering OpportunitiesTogether

North Otago Irrigation Company LimitedANNUAL REPORT 2018

Our performance at a glance

Protected Revenue$12.7m

Delivery Cash

59

$160.5 million in assets

17,145shares

A minimum flow of 100L/sec has been set for Waiareka Creek an increase of 42%

34.5 million m3

water delivered$3.1m in hand

completed Farm Environment Plan Audits

The company’s assets continues to grow, this year by a pleasing 9%

Our progress

The Company was incorporated to investigate and deliver bringing large-scale irrigation to the North Otago downlands area. From the beginning, farmer-director leadership and energy were instrumental in developing detailed engineering and feasibility studies into various options, and for promoting the scheme and gaining community acceptance.

Resource consents were issued allowing the Company to take water from the Waitaki River and distribute it to the downlands area.

Staged development began with Stage One to irrigate up to 10,000 hectares with up to four cumecs of water. $18.5 million equity was raised under a registered prospectus enabling the $57.9 million capital project to be launched. Farmer shareholders entered into a Water Supply Agreement covering the supply of water and environmental management requirements, secured by a Memorandum of Encumbrance over no less than one hectare per share.

Stage One was publicly opened, bringing pressurised water to subscribed farmers for the first time.

An independent chair was appointed. Planning began to utilise Stage One overbuild of canals and pump houses to meet additional farmer demand for pressurised water in the south and east of the downlands area.

The Paradise Gully extension reached practical completion.

A CEO and Environmental Manager were appointed, adding support to governance and environmental management functions.

North Otago Irrigation became a founding member of the Waitaki Irrigators Collective.

The Duntroon Extension reached practical completion.

Governance continued to develop with the addition of two independent directors to the Board, to serve alongside four farmer-elected directors and one Director appointed by the Waitaki District Council.

The Company was the recipient of the Irrigation New Zealand Innovation Award for their comprehensive Audited Environmental Self-Management System.

The Tilverstowe Extension reached practical completion.

The Five Forks Extension reached practical completion.

A second registered prospectus was launched following sufficient expressions of interest from farmers interested in investing in the significant Stage Two expansion project that would deliver the remaining 3.2 cumecs of consented water.

Stage Two milestones achieved included strengthened relationships with Iwi and the granting of a new resource consent. Construction began with site mobilisation at the company’s two main pump stations.

The Stage Two expansion project was progressively built, adding approximately 114km of pipeline with up to ten crews working at once.

Stage Two reached practical completion.

Summer 2017-18:The company delivered its highest ever volumes of water to meet farmer demand during the driest months of the season.

1990

2003

2012

2013 2014

2015

2016

2017 2018

2011

2004

2006

2008

2009 2010


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3

Our work

WHAT WE DO North Otago Irrigation Company Limited (NOIC) is a limited liability company and its purpose is to construct, maintain and operate an irrigation scheme for the benefit of its shareholders who are also the users of the water supplied through its infrastructure.

The role of the company involves the formulation of strategies and plans to ensure the most cost effective and reliable supply of water, whilst maintaining both social and regulatory licenses to operate by meeting its communications and environmental objectives.

The company has a strong set of values that guide its actions and these values include confidence, prosperity, inclusiveness and openness, and equal opportunity and responsibility.

The shareholders have invested significant capital in the construction of a state-of-the-art pressurised piped system that is capable of delivering water over a significant area of North Otago. With the recent expansion completed and now delivering water, there is over 200km of pipe in the ground and sixteen highly automated, enclosed pumping stations in operation.

NOIC is founded on cooperative principles and was created entirely for the direct benefit of its shareholders. Reflecting this, the company’s primary objectives are around the prudent and safe management of its assets, including its human resources, as well as adherence to the environmental obligations that allow it to operate within the North Otago and wider community.

Centre-pivot irrigator (photo courtesy of Otago Daily Times, 2017)


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Our responsibilities

CARING FOR OUR ENVIRONMENTThe Company recognises that its activities, and those of its shareholders have the potential to impact on the environment in which it operates. The Company maintains a number of consents and licences and employs a full-time Environmental Manager to ensure all legal and regulatory responsibilities are adhered to.

Over and above the statutory requirements, the Board and Management are heavily involved in the deployment of an environmental strategy which has been designed to ensure

to encourage good practice, innovation and compliance.

NOIC is also a member in good standing of Irrigation New Zealand, an industry body that provides training in efficient water use.

Highlights for the year include:

NOIC remains at the forefront in developing sustainable practices.

NOIC works closely with its partners, the Waitaki Irrigators Collective (WIC) and North Otago Sustainable Land Management Society (NoSLAM),

NOIC has supported the Kakanui Community Catchment Project’s work creating a rest area and planting in Enfield, adjacent to the Alps To Ocean cycle trail

This annual report is printed on Silk Matt paper stock manufactured using elemental chlorine free, FSC® Certified Mixed Source pulp from well managed forests and other controlled sources. FSC® Certificate number: SCS-C102086

59 Farm Environmental Plans audited for evidence of good practice

107 water quality tests completed

15 sites monitored in partnership with Otago Regional Council

$54,268 contributed in support of Irrigation New Zealand and Waitaki Irrigators Collective

$168,609 total spend on environmental initiatives


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HEALTH AND SAFETY AT WORKThe Board and management of NOIC are committed to providing and maintaining an environment and system of work that is safe and without undue risk to workers and others who can be affected by our work.

The Board maintains a Health and Safety Charter and reviews it on a regular basis. ‘Health and Safety’ is a formal agenda item at all board meetings and at least one in-field visit is completed by the directors each year.

The Company recorded one injury – a pinched hand – during the year. The Company also completed an independent audit of one of its major field-based risks – machine guarding – and invested $42,000 in improvements to the control of this hazard during the year.

Importantly, staff and management are continuously involved in the implementation, review and improvement of health and safety management systems.

Children, parents and staff from Five Forks School visit NOIC headquarters, 2017


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Chairperson’s report

It is my privilege to present you with the annual report of the North Otago Irrigation Company Limited for the 2017 – 2018 year. I want to start by noting that this will be my last Chairperson’s report as I have decided not to re-seek election after 15 years on the board.

I look back with pride on what we have achieved together over the time I have been honoured to be a shareholder-elected Director.

ACHIEVEMENTSThis season we completed the long-awaited expansion of our infrastructure. This new infrastructure, going the length of the Kakanui Valley, increases the catchment into which we now offer the opportunity for water to 64,000 hectares.

We are now supplying water for 17,145 shares with an additional 2,855 shares of overbuild available at various locations along the length of the new pipeline.

Achieving the completion of this expansion provides the backbone of our vision to help create a “vibrant and prosperous community” and is testament to our value of being inclusive.

RELATIONSHIPSThis company would not exist in the form that it does, nor be able to undertake a project of this nature, without the goodwill of a significant proportion of our farming community. I respect this very much and it will be important to continue to work

together as we face challenges in the future.

In the delivery of the expansion project there was significant pressure and loss suffered by all those involved on the way to the successful outcome. I wish to acknowledge McConnell Dowell and AECOM; thank you for your commitment to stay involved and work together constructively in order to complete the project.

Thank you to the NOIC team; especially Robyn, Ben, Roger and Susie. I know you all went the extra mile and stuck with it because you cared about this project and the people who rely on it.

The way forward will continue to be formed on good relationships. Thank you to WIC and NOSLaM; we support you in the work you do on our behalf.

CHALLENGESAs a company we are just getting started. A great future will require imagination and hard work. Also, we will have to maintain our desire and ability to work together for everyone’s benefit.

Our scheme is for the benefit of the irrigators, community and environment. But we need to be asking ourselves some important questions.

What do we imagine that our catchments should look like and how should they function with an increased amount of water being in the environment?

What should our farms look like?

Our handprint on the environment is considerable. Are there ways that we could be less heavy handed? There will be a continuing need to intensify our farming as much as possible in a sustainable manner, but are there portions of our farms that already need farmed less intensively or even retired?

We need to purposefully put our individual and collective effort into fixing up what we have impacted and then creating a restored environment that we care for.

There are two things that make environmental care difficult for us, but these things are also what gives us the most capability.

Firstly, under our regional council we have freedom as to how we farm, and this puts a high level of responsibility on us to self-govern. The danger is already evident that we can use this situation to put off our responsibility and move too slowly or too little.

our scheme is for the benefit of the irrigators, community and

environment


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Good initiatives, whether via NOIC or most probably NOSLaM to facilitate or enable improvement to our environment should be supported. We mustn’t let the uncertainty inherent in the freedom we have delay us in taking decisive and meaningful action. It is logical that the measures being prescribed in other regions will be useful in our situations in some way, and we have the opportunity to effectively adapt these measures to our particular properties now.

The second difficulty is that we are dependent on each other. In an effects-based system, the bad outcome may be due to a few farmers, but all the farmers linked to that outcome are impacted. Our farming has influence past our boundary and impacts on our neighbour’s freedom to farm. This challenge

is for the middle farmers, for all intents and purposes, everyone needs to make significant improvement. Our reputation is at stake – we sink or swim together (excuse the pun).

Waterways are our major collective responsibility. When we talk about our waterways, it includes the Awamoko Stream, Waiareka Creek and Kakanui River. All our farms are connected to one or several fingers leading into one of these water courses. NOSLaM is working in several areas helping groups of farmers to take collective action. This type of activity needs to be joined by all of us, so I encourage you, if you are not already, to get involved.

APPRECIATIONOnce again thank you to all the NOIC team, some of whom I have already mentioned. But I would like to also mention the

staff who are out and about keeping everything running for us, not easy with a lot of new infrastructure to sort out and manage. Thank you to Colin, Shane, Will and Greg.

Thank you to my fellow Directors, this year has seen the continued evolution of our board with the addition of two new farmer directors in Matt and Gareth. We missed having Keri involved this year, and yes, we will get the Waiareka Creek sorted.

Thank you for your continued support – it has been a real privilege to be involved.

Leigh HamiltonChairperson

Sustainable dairy production is pivotal to NOIC’s performance (photo courtesy of Otago Daily Times, 2017)


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CEO’s report

WATER DEMAND PER SHAREFor the period August to May

ALLO

CATI

ON

USED

PER

SHA

RE

AUG SEP OCT NOV DEC JAN FEB MAR APR MAY

10-YEAR MAXIMUM10-YEAR MINIMUM

10-YEAR AVERAGEAUGUST-MAY 2017-18

2017-18 was an important year for the Company with completion of the Stage Two expansion project a significant milestone and delivering on our growth strategy that began in 2004 with the first prospectus to commence Stage One.

Handing-over of the final offtakes to farmers was completed in November, just in time for the dry summer weather and enabling the realisation of years of planning, work and farmer and community support.

In December 2017 and January 2018, the company delivered between 11.4 and 11.5 million cubic meters of water per month, the highest ever monthly volumes of water. During those months, farmer demand for water per share reached the highest levels seen in NOIC’s ten-year history.

Total irrigation water delivered for the season was 34.5 million cubic meters of water, up 131% on the previous season. During the year the company also delivered 666,000 cubic meters of stock and shed water, up 272% on the previous season.

FINANCIAL Delivering on our commitments to shareholders resulted in total revenue increasing 42% to $12.7

after a deferred tax adjustment. This revaluation gain is a reflection of growth in value and also is unrealised.

Reflecting this performance, total comprehensive income for the year was $6.8 million, up from $4.2 million in the 2017 year.

Legal expenses were the most significant one-off expense recorded during the year as management and advisors worked to secure a full and final settlement from McConnell Dowell, and then from AECOM. Total revenue included a settlement payment of $275,000 from our consultant engineer. Gaining final settlement removes the possibility of additional amounts being payable to either party as could otherwise have been possible.

million and a 41% increase in expenses to $9.4 million. Finance costs rose 57% to $4.0 million. However, our average interest rate paid reduced from 4.92% to 4.88% per annum.

Other gains and losses included the fair value revaluation of our interest rate swaps resulting in a $578,000 loss. This value movement is unrealised, and the Company continues to hold its derivatives to maturity, so any fair value movements are expected to reverse out over their remaining lives.

Scheme assets were revalued resulting in a $6.6 million gain

in december 2017 and january 2018 the company delivered the highest

ever monthly volumes of water

60%

40%

20%

0%


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WATER DEMAND PER SHAREFor the period August to May

Total assets of the company increased 9% to $160.5 million. Company equity increased 13% to $57.8 million. Equity has now reached 36% of total assets, up from 34% at the end of the 2017 year.

Trade and other payables have now reduced to a much more manageable $1.2 million with the construction phase being at completion.

THE TEAMThe addition of the Commercial Manager, and more recently the Business Support Administrator, Stephen and Kathy respectively, has significantly boosted the capabilities in the office and we are grateful for their professionalism and expertise.

It was a whirlwind introduction to the business as we grappled with mediations, commissioning issues, record deliveries and who can forget the plastic stickers.

The operations team proved themselves dedicated and hard working once again. Thank you to all the team.

We look forward to our second season as the new NOIC delivering to 170 shareholders through 243 off-takes covering a command area of 64,000 hectares. Thank you for your on-going support.

Robyn WellsChief Executive

Shane Hill, NOIC Operator, using SCADA technology to control and monitor water delivery systems

EQUITY PERCENTAGEFor the period 2016-2018

30%

40%

20%

10%

0%2016 2017 2018


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Company Directory

For the year ended 30 June 2018

NATURE OF BUSINESSIrrigation scheme construction and operation

REGISTERED OFFICEHarvie Green Wyatt229 Moray Place, Dunedin

ADDRESS FOR SERVICEHarvie Green Wyatt229 Moray Place, Dunedin

DIRECTORSW L HamiltonG P PlunketC B Shearer J A WrightG L Isbister (appointed 1 November 2017)M F Ross (appointed 1 November 2017)P B Hope (appointed 1 January 2018)G A Isbister (resigned 1 November 2017)K Y Robinson (resigned 1 November 2017) M H M Ross (resigned 31 December 2017)

CHIEF EXECUTIVERobyn Wells

ACCOUNTANTSHarvie Green Wyatt, Dunedin

BANKERSASB Rural Corporate, Dunedin

SOLICITORSBerry & Co, Oamaru

AUDITORSCrowe Horwath New Zealand Audit Partnership,Dunedin

BUSINESS LOCATIONNorth Otago, New Zealand


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Directors’ Report


The Board of Directors present its Annual Report, including financial statements of the Company, for the year ended 30 June 2018.

As required by section 211 of the Companies Act 1993 we disclose the following information:

The business of the Company is construction and operation of an irrigation scheme.

At the end of the year W L Hamilton, G P Plunket, C B Shearer, J A Wright, G L Isbister, M F Ross and P B Hope held office as Directors.

Directors’ remuneration and other benefits paid during the year or due and payable are as follows:

2018 2017W L Hamilton $24,000 $24,000G P Plunket $12,000 $12,000C B Shearer $12,000 $7,957J A Wright $12,000 $12,000G L Isbister (appointed 1 November 2017) $7,957 $nilM F Ross (appointed 1 November 2017) $7,957 $nilP B Hope (appointed 1 January 2018) $6,000 $nilK O Diprose (resigned 2 November 2016) $nil $4,076G A Isbister (resigned 1 November 2017) $4,043 $12,000K Y Robinson (resigned 1 November 2017) $4,043 $12,000M H M Ross (resigned 31 December 2017) $6,000 $12,000

The Board received notices during the year from Directors that they had an interest in transactions or proposed transactions by the Company.

One employee received remuneration and benefits of between $230,000 and $240,000 during the year (2017: one between $230,000 and $240,000).

No donations were made by the Company during the year.

Amounts due and payable to the Auditors are as follows: 2018 2017Auditing financial statements $18,050 $17,029Other assurance services pertaining to the prospectus $nil $nilTotal fees paid to audit firm $18,050 $17,029

INTEREST REGISTERThe Directors have maintained an interest register for the year.

For and on behalf of the Board

Leigh HamiltonDirector18 September 2018

Paul HopeDirector18 September 2018


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Directors’ Responsibility Statement


The Directors of North Otago Irrigation Company Limited are pleased to present to shareholders the financial statements for the Company for the year ended 30 June 2018.

The Directors are responsible for presenting financial statements in accordance with New Zealand law and generally accepted accounting practice, which fairly reflects the financial position for the Company as at 30 June 2018 and the results of their operations and cash flows for the year ended on that date.

The Directors consider the financial statements of the Company have been prepared using accounting policies which have been consistently applied and supported by reasonable judgments and estimates and that all relevant financial reporting and accounting standards have been followed.

The Directors believe that proper accounting records have been kept which enable with reasonable accuracy, the determination of the financial position of the Company and facilitate compliance of the financial statements with the Financial Reporting Act 2013.

The Directors consider that they have taken adequate steps to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Internal control procedures are also considered to be sufficient to provide a reasonable assurance as to the integrity and reliability of the financial statements.

The financial statements are signed on behalf of the Board by:

Leigh HamiltonDirector18 September 2018

Paul HopeDirector18 September 2018


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Crowe Horwath New Zealand Audit Partnership is a member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath is a separate and independent legal entity.

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of North Otago Irrigation Company Limited

Opinion

We have audited the financial statements of North Otago Irrigation Company Limited (the “Company”) on pages 16 to 53, which comprise the statement of financial position as at 30 June 2018, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at 30 June 2018 and its financial performance and its cash flows for the year then ended in accordance with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ)). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other than in our capacity as auditor we have no relationship with, or interests in the North Otago Irrigation Company Limited.

Information other than the financial statements and auditor’s report

The directors are responsible for the other information. The other information comprises the information included on pages 1 to 5, the information in the Chairman’s Report and the CEO’s Report on pages 6 to 9 and the Director’s Report on page 11, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon.

Crowe Horwath New Zealand Audit Partnership Member Crowe Horwath International

PO Box 188 Dunedin 9054 44 York Place Dunedin 9016 New Zealand Tel +64 3 477 5790 Fax +64 3 474 1564 www.crowehorwath.co.nz [email protected]


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In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Directors’ Responsibilities for the Financial Statements The directors are responsible on behalf of the Company for the preparation and fair presentation of the financial statements in accordance with NZ IFRS, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (NZ) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs (NZ), we exercise professional judgement and maintain professional scepticism throughout the audit. We also: ▪ Identify and assess the risks of material misstatement of the financial statements, whether

due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

▪ Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.


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▪ Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management.

▪ Conclude on the appropriateness of the use of the going concern basis of accounting by the directors and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

▪ Evaluate the overall presentation, structure and content of the financial statements,

including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulting in this independent auditor’s report is Michael Lee.

For and on behalf of:

Crowe Horwath New Zealand Audit Partnership

CHARTERED ACCOUNTANTS Dated at Invercargill this 18th day of September 2018


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Statement of Comprehensive Income


Note 2018 2017 $,000 $,000

Revenue 2 12,682 8,943Direct expenses 3a (8,437) (5,886)Employment expenses 3b (992) (820)Operating profit 3,253 2,237

Finance income 4 9 41Finance costs 4 (4,034) (2,565) (4,025) (2,524)Net profit/(loss) prior to other gains and tax (772) (287)

Other gains/(losses) 5 (578) 2,317

Profit/(Loss) before income tax (1,350) 2,030Income tax (expense)/credit 9 1,528 (568)

Profit/(Loss) for the year 178 1,462Other comprehensive income 6 6,606 2,766Total comprehensive income for the year 6,784 4,228

The accompanying notes form part of these financial statements


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Statement of Changes in Equity

For the year ended 30 June

Note Retained Share Revaluation Treasury Total Earnings Capital Stock Equity $,000 $,000 $,000 $,000 $,0002018Opening balance 1 July 2017 (11,552) 50,899 11,622 (6) 50,963Profit/(Loss) for the year 6,784 – – – 6,784Other comprehensive income movements for the year (6,606) – 6,606 – –Total comprehensive income for the year 178 – 6,606 – 6,784Issue of share capital and calls of share capital 11 – 14 – – 13Total transactions with owners recorded directly in equity – 14 – – 13Balance 30 June 2018 (11,375) 50,913 18,228 (6) 57,760

2017Opening balance 1 July 2016 (13,014) 36,759 8,856 (6) 32,595Profit/(Loss) for the year 4,228 – – – 4,228Other comprehensive income movementsfor the year (2,766) – 2,766 – –Total comprehensive income for the year 1,462 – 2,766 – 4,228Issue of share capital 11 – 14,140 – – 14,140Total transactions with owners recordeddirectly in equity – 14,140 – – 14,140Balance 30 June 2017 (11,552) 50,899 11,622 (6) 50,963



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Statement of Financial Position

As at 30 June 2018

Note 2018 2017 $,000 $,000Current assetsCash and cash equivalents 3,074 845 Trade and other receivables 21 1,097 1,470 Inventories 22 292 203 Income tax receivable – 10 4,463 2,528Non-current assetsIntangible assets 24 200 215Property, plant and equipment 23 155,872 145,036Investments 26 3 3 156,075 145,254Total assets 160,538 147,782

Current liabilitiesTrade and other payables 15 1,176 6,272Employee benefits 20 67 53Deferred tax 9 2,685 569Derivative financial instruments 27 – – 3,928 6,894Non-current liabilitiesTerm borrowings 19 94,500 86,153Derivative financial Instruments 27 4,350 3,771 98,850 89,925Total liabilities 102,778 96,819Total net assets 57,760 50,963

Equity 10 Share capital 50,913 50,899Retained earnings/(losses) (11,375) (11,552)Revaluation reserve 12 18,228 11,622Treasury stock (6) (6)Total equity 57,760 50,963

For and on behalf of the Board, who authorise these financial statementsfor issue on 18th September 2018.


Leigh HamiltonDirector

Paul HopeDirector


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Statement of Cash Flows


Note 2018 2017 $,000 $,000Cash flows from operating activitiesCash was provided from:Receipts from customers 11,994 8,852Rent received – 1Interest received 8 42Other 468 21GST 40 228Income tax refunded 10 29 12,520 9,173

Cash was disbursed to:Payments to suppliers (5,770) (7,337)Payments to and on behalf of employees (962) (862)Interest paid (3,603) (2,565)Capitalised interest paid (371) 1,360)RWT paid – (10) (10,706) (12,134)Net cash flows from operating activities 28 1,814 (2,962)

Cash flows from investing activitiesCash was disbursed to:Purchase of irrigation scheme infrastructure (7,933) (27,701)Purchase of unlisted shares and advances – – (7,933) (21,701)Net cash flows/(outflows) from investing activities (7,933) (21,701)

Cash flows from financing activitiesCash was provided from:Call on shares and shares issued – 11,258Share deposits received, not yet issued – –Borrowings 8,347 12,750 8,347 24,008Net cash flows from financing activities 8,347 24,008

Net increase/(decrease) in cash held 2,229 (655)Cash and cash equivalents at the beginning of year 845 1,500Cash and cash equivalents at end of year 3,074 845



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Notes to the Financial StatementsNotes to and forming part of the Financial Statements for the year ended 30 June 2018

North Otago Irrigation Company Limited Annual Report For the Year Ended 30 June 2018

Notes to and forming part of the financial statements For the Year Ended 30 June 2018

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1 Reporting entity North Otago Irrigation Company Limited (‘the company’) is a profit oriented

company incorporated and domiciled in New Zealand, registered under the Companies Act 1993.

The Company is an issuer for the purposes of the Financial Markets Conduct Act

2013. Its principal activity is the construction and operation of an irrigation scheme. The financial statements for the year ended 30 June 2018 were authorised for

issue with a resolution of the directors on 18th September 2018. Basis of Preparation The financial statements of the Company have been prepared in accordance with

generally accepted accounting practice in New Zealand and the requirements of the Companies Act 1993 and the Financial Markets Conduct Act 2013. The financial statements have also been prepared on an historical cost basis, except for derivative financial instruments, which have been measured at fair value and irrigation infrastructure which is carried at optimised depreciated replacement cost.

The financial statements are presented in New Zealand dollars which is the

company’s functional currency. Statement of Compliance These financial statements have been prepared in accordance with NZ GAAP.

They comply with New Zealand Equivalents to International Financial Reporting Standards (NZIFRS), and other applicable Financial Reporting Standards, as appropriate for profit- oriented entities.

Significant accounting policies The accounting policies set out below have been applied consistently to all periods

presented in these financial statements. Certain comparatives have been reclassified to conform with the current year’s presentation.

a) Property, plant, and equipment

(i) Recognition and measurement

Except for irrigation infrastructure, items of property, plant and equipment are measured at cost, less accumulated depreciation and impairment losses. Land is not depreciated. The initial cost includes the purchase price and any costs directly attributable to bringing the asset to the state of being ready for use in location. These costs can include installation costs, borrowing costs, cost of obtaining resource consents etc. Any feasibility costs are expensed.

The company has four classes of property, plant and equipment:


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• Freehold land; • Freehold buildings/structures, plant and equipment; • Irrigation Infrastructure • Capital work in progress.

(ii) Irrigation Infrastructure recognition and measurement

Infrastructure assets are initially stated at cost. On a three yearly basis or sooner if the director’s deem necessary, such assets are valued by an independent valuer, the valuation approach being optimised depreciated replacement cost. The depreciated replacement cost includes, among other things, estimates and assumptions about the useful lives, replacement costs and residual value of the assets and water resources consents term. Any gain arising from a change in the value of the assets is recognised in the statement of comprehensive income as other comprehensive income. A loss is only recognised in other comprehensive income to the extent that a gain has previously been recognised for that asset, with any residual recognised in profit and loss. A valuation was undertaken as at 30 June 2018.

(iii) Subsequent expenditure

Subsequent expenditure is added to the gross carrying amount of an item of property, plant or equipment, if that expenditure increases the future economic benefits of the asset beyond its existing potential, or is necessarily incurred to enable future economic benefits to be obtained and its cost can be measured reliably.

(iv) Disposal of property, plant or equipment When an item of such is disposed of, the gain or loss is recognised in the Statement of Comprehensive Income at the difference between the net sale price and the net carrying amount of the item.

(v) Depreciation Depreciation is calculated on a straight line basis to allocate the cost of an asset, less its residual value, over its useful life. The estimated useful lives of significant asset categories are:

• Freehold buildings, structures, pipe work and components 15-50 years

• Mechanical plant 30 years • Electrical equipment 25 years • Irrigation Infrastructure 15 – 100 years


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Depreciation methods, useful lives and residual values are reassessed at the reporting date.

b) Intangible Assets

Intangible assets acquired by the company, which have finite useful lives, are measured at cost less accumulated amortisation and any impairment losses. Amortisation is recognised on a straight-line basis over the estimated useful life of the asset, from the date they are available for use, and disclosed within expenses. The following amortisation rates have been applied to each class of intangible assets: Water Permit 20 - 23 years. Residual values and useful lives are reviewed at each reporting date.

Disposals Gains or losses on disposal are determined by comparing the proceeds with

the carrying amount of the intangible asset and reported in the statement of comprehensive income.

c) Inventories

Inventories comprise spare parts and other consumables which are used to repair and maintain the Company’s infrastructure assets. Inventories are stated at the lower of cost and net realisable value. Cost is based on first-in first-out.

d) Financial Instruments

(i) Non-derivative financial instruments

The company is party to financial instruments as part of its normal operations. These financial instruments include cash and cash equivalents, trade and other receivables, loans and borrowings, and trade and other payables. Non-derivative financial instruments are recognised initially at fair value on transaction date plus, for instruments not at fair value through the statement of comprehensive income, any directly attributable transactions costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.


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A financial instrument is recognised if the company becomes party to the contractual provisions of the instrument. Financial assets are derecognised if the company’s contractual rights to the cash flows from the financial assets expire or if the company transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Purchases and sales of financial assets are accounted for at trade date. Financial liabilities are derecognised if the company’s obligations specified in the contract expire or are discharged or cancelled. Cash and cash equivalents comprise cash balances and call deposits.

Trade and other receivables Trade and other receivables are stated at their cost less impairment losses. Interest-bearing borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Trade and other payables Trade and other payables are stated at cost.

(ii) Derivative financial instruments The Company uses derivative financial instruments including forward exchange contracts and interest rate swaps for the primary purpose of reducing its exposure to fluctuations in foreign currency rates and interest rates. A specific accounting treatment is required for derivatives designated as hedging instruments in cash flow hedge relationships. To qualify for hedge accounting, the hedge relationship must meet several strict conditions with respect to documentation, probability of occurrence of the hedged transaction and hedge effectiveness. All other derivative financial instruments are accounted for at fair value through profit or loss. In accordance with the treasury policy, the Company does not hold or issue derivatives financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.


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Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value. When a derivative financial instrument is not held for trading, and is not designated in a qualifying hedge relationship, all changes in fair value are recognised immediately in profit and loss. As the derivatives held by the Company do not qualify for hedge accounting and therefore hedge accounting is not applied, the gain or loss on re-measurement to fair value is recognised in the statement of comprehensive income.

e) Impairment

The carrying amount of company assets are reviewed at each balance date to determine whether there is any objective evidence of impairment. An impairment loss is recognised whenever the carrying amount of an asset exceeds it recoverable amount. Impairment losses directly reduce the carrying amount of assets and are recognised in the statement of comprehensive income. (i) Impairment of receivables

Accounts receivable for the company are valued at their anticipated realisable value after writing off amounts considered to be irrecoverable and making adequate provision for doubtful debts.

f) Provisions

A provision is recognised if, as a result of a past event, the company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. (i) Employee Entitlements

Short-term employee benefits Employee benefits, previously earned from past services, that the Company expect to be settled within 12 months or reporting date are measured based on accrued entitlements at current rate of pays. These include salaries and wages accrued up to the reporting date and annual leave earned, but not yet taken at the reporting date.

g) Revenue


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Revenue is measured at the fair value of the consideration received or receivable, and recovery of the consideration is probable.

Revenue from services rendered is recognised in the Statement of Comprehensive Income in proportion to the stage of completion of the transaction at the reporting date.

h) Lease Payments

Payments made under operating leases are recognised in the Statement of Comprehensive Income on a straight-line basis over the term of the lease.

i) Finance Income and Expenses Finance income comprises interest income on funds invested, dividend income, and change in the fair value of financial assets at fair value through the statement of comprehensive income. Interest income is recognised as it accrues, using the effective interest method. Dividend income is recognised on the date that the company’s right to receive payment is established.

j) Income Tax Expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in the statement of comprehensive income, except to the extent that it relates to items recognised directly in equity, in which case it is recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reported date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for taxation purposes. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

k) Determination of Fair Values

A number of the company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable,



19

Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value. When a derivative financial instrument is not held for trading, and is not designated in a qualifying hedge relationship, all changes in fair value are recognised immediately in profit and loss. As the derivatives held by the Company do not qualify for hedge accounting and therefore hedge accounting is not applied, the gain or loss on re-measurement to fair value is recognised in the statement of comprehensive income.

e) Impairment

The carrying amount of company assets are reviewed at each balance date to determine whether there is any objective evidence of impairment. An impairment loss is recognised whenever the carrying amount of an asset exceeds it recoverable amount. Impairment losses directly reduce the carrying amount of assets and are recognised in the statement of comprehensive income. (i) Impairment of receivables

Accounts receivable for the company are valued at their anticipated realisable value after writing off amounts considered to be irrecoverable and making adequate provision for doubtful debts.

f) Provisions

A provision is recognised if, as a result of a past event, the company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. (i) Employee Entitlements

Short-term employee benefits Employee benefits, previously earned from past services, that the Company expect to be settled within 12 months or reporting date are measured based on accrued entitlements at current rate of pays. These include salaries and wages accrued up to the reporting date and annual leave earned, but not yet taken at the reporting date.

g) Revenue


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further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(i) Derivative Financial Instruments

The fair value of interest rate swap contracts and forward exchange contracts is determined by using quoted rates at balance date

(ii) Irrigation Infrastructure

Irrigation infrastructure is valued at optimised depreciated replacement

cost as determined by independent valuers.

(iii) Other Non-Derivative Financial Instruments

The carrying values less impairment provisions of trade receivables and payables are assumed to approximate their fair value. The carrying values of loans and borrowings approximate their fair values.

l) Significant accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make

judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources.

Management has identified the following critical accounting policies for which

significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods.

(i) Impairment of non-financial assets

The company assesses impairment of all assets at each reporting date by evaluating conditions specific to the company and to the particular asset that may lead to impairment. These include performance, technology, economic and political environments and future use expectations. If an impairment trigger exists the recoverable amount of


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the asset is determined. Further detail with respect to this can be seen in note 18(b).

(ii) Depreciated replacement cost of infrastructure assets

Independent valuers are used to determine the optimised depreciated replacement cost of infrastructure assets. The values are estimated amounts for the replacement cost of a modern equivalent asset.

(iii) Estimated useful lives of infrastructure assets

Useful lives for infrastructure assets are estimated based on the typical total useful life for each particular type of asset. Remaining useful lives have been determined using the total useful life less the period of service.

(iv) Resource consent lives

The useful lives of the infrastructure assets is dependent on renewal of the Company’s water rights resource consents, which are currently set to expire in 2030 to 2033. The independent valuer’s valuation is based on the assumption the existing resource consent will be renewed. The valuation assigns standard lives of components of the scheme between 15 and 100 years.

(v) Tax Losses

Tax losses available to the company have not been recognised as a deferred tax asset as it is not considered probable that future taxable profits will be available against which the asset could be utilised.

m) Changes in Accounting Policies

There were no changes in Accounting policies during the year. All Accounting policies have been applied on a basis consistent with the prior year.


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2 Revenue Note 2018 2017 $000 $000 Revenue Fixed 5,462 4,221 Operating 3,891 3,038 Water Usage 2,854 1,662 __________ __________ Total revenue 12,207 8,921 Other revenue Rent revenue - 1 Depreciation Recovered 8 - Other revenue 164 21 Farm Audits 29 - Compensation Payout 275 - __________ __________ Total other revenue 475 22 __________ __________ Total operating revenues $12,682 $8,943 __________ __________


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Note 2018 2017 3 Expenses $000 $000 a) Direct expenses ACC levies 6 6 Accounting fees 82 91 Audit fees 7 18 17 Bank fees 3 1 Consultants’ fees 65 32 Depreciation 23 2,728 1,617 Losses on Disposal - - Directors’ expenses 19 16 Water permit amortisation 15 15 Entertainment – deductible 1 1 Entertainment -non-deductible 1 1 Environmental 82 130 Fringe benefit tax 14 9 Insurance 350 246 Legal expenses -deductible 465 216 Motor vehicle expenses 81 76 Office expenses 53 46 Power 3,120 2,267 Professional Development 23 11 Rates 71 42 Recruitment and relocation expenses 11 6 Rental 28 28 Repairs and maintenance 963 677 Scheme Development - Kakanui IAF 2 139 Scheme Operations 130 105 Scholarship Payments 1 1 Telephone 7 8 Waitaki Irrigators Collective costs 39 42 Other expenses 59 40 _________ _________ $8,437 $5,886 _________ _________ b) Employment expenses Directors’ fees 8 96 99 Salaries 896 721 ________ ________ $992 $820 ________ ________


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Note 2018 2017 4 Finance income and costs $000 $000 Financing income

Interest income on bank deposits 9 41 _________ _________ Total finance income 9 41 Financing expenditure

ASB Bank loans interest (3,847) (3,317) WDC loan interest (558) (608) Capitalised interest 371 1,360 _________ _________ 4,034 2,565 ___________ ___________ Total net finance costs $(4,025) $(2,524) ______________________ 5 Other gains/(losses) Fair value gain/(loss) on interest rate swaps at fair value through the profit and loss (578) 2,311 Fair value gain (loss) on Forward Exchange Contracts at fair value through the profit and loss - 6 _________ _________ Total other gains $(578) $2,317 _________ _________ 6 Other Comprehensive Income Revaluation Gain 10,250 2,766 Deferred Tax Adjustment (3,644) - _________ _________ Total other gains $6,606 $2,766 _________ _________ 7 Auditor’s remuneration Financial statements audit 18 17 _______ ______ Total auditor’s remuneration $18 $17 _______ ______


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8 Directors’ compensation Directors’ fees 96 99 _______ _______ Total Directors’ compensation $96 $99 _______ _______


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2018 2017 9 Income Tax $000 $000 Tax Expense

Profit/(loss) for the year before tax (1,350) 2,030 Income tax at 28% (378) 568 Plus/(less) tax effect of: Expenses not deductible for tax purposes - - Tax losses not previously recognised (1,150) - ________ ________ Tax expense $(1,528) $568 ________ ________

Deferred tax asset/(liability)

Opening Asset Charged to Closing Asset 2018 (Liability) Income (Liability) _______________________________________________________________________ Property, Plant & Equipment (3,117) (3,523) (6,640) Employee Benefits 15 4 19 Tax losses 2,533 1,403 3,936 _________________________________ (569) (2,116) (2,685) _________________________________ Opening Asset Charged to Closing Asset 2017 (Liability) Income (Liability) _______________________________________________________________________ Property, Plant & Equipment (2,982) (134) (3,117) Employee Benefits 15 (1) 15 Tax losses 2,967 (434) 2,533 _________________________________ - (569) (569) ______________________________________

North Otago Irrigation Limited has sufficient taxable temporary differences which will result in taxable amounts against which the unused tax losses can be utilised before they expire.

Imputation credits 2018 2017 $000 $000 Imputation credits available for use in subsequent 0 10 reporting periods ______ ______


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2018 2017 10 Total equity $000 $000 Note Share capital 11 50,913 50,899 Retained earnings (losses) 13 (11,375) (11,552) Property, Plant & Equipment Revaluation reserve 12 18,228 11,622 Treasury stock 11 (6) (6) __________ _________ Total equity $57,760 $50,963 __________ _________

11 Share capital 2018 2017 Shares ($000) Shares ($000) Ordinary shares Opening Balance 17,142 50,899 15,679 36,759 Shares issued in year 3 14 1,463 14,140 ______ _________ ______ __________ Closing Balance 17,145 $50,913 17,142 $50,899 ______ _________ ______ __________ Total share capital $50,913 $50,899 __________ __________ 17,145 ordinary shares have been issued of 20,000 authorised for issue. All

ordinary shares have equal voting rights and share equally in dividends and surplus on winding up and no par value.

Share Repurchase held as Treasury Stock Treasury stock of 3 shares valued at $5,550 was held at 30 June 2018. There have been no movements during the year.

17,145 shares as at 30 June 2018 have been issued and fully paid (2017: 17,142).


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12 Revaluation reserve 2018 2017 $000 $000 Balance at beginning of year 11,622 8,856 Net change in fair value of Irrigation infrastructure Assets 10,250 2,766 Deferred Tax Adjustment (3,645) - _________ _________ Balance at end of year $18,228 $11,622 __________ __________ 2018 2017 13 Retained earnings (losses) Balance at beginning of year (11,552) (13,014) Profit (loss) for the year 178 1,462 ___________ ___________ Balance at end of year $(11,375) $(11,552) ______________________ 14 Distributions to owners There have been no distributions to shareholders. 15 Trade & other payables 2018 2017 Current Trade payables 630 1,347 Sundry payables and accruals 431 4,912 Deposits in advance - 13 GST Payable 115 - ________ _________ Total payables $1,176 $6,272 ________ _________


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16 Financial Instruments (a) Classification of financial instruments

The carrying amounts presented in the statement of financial position relate to the following categories of financial assets and liabilities.

(b) Classification of financial instruments The carrying amounts presented in the statement of financial position relate to the following categories of financial assets and liabilities.

2018 $000 Financial Assets at fair value through

profit and loss

Loans and Receivables

Financial Liabilities

at amortised

cost

Total

Financial assets Cash and cash equivalents Trade debtors and other receivables Investments

3,074

3

1,097

3,074 1,097

3 TOTAL

3,077

1,097

4,174

Financial Liabilities Trade creditors and other payables Loans and borrowings Interest Rate Swaps

4,350

1,176

94,500

1,176

94,500 4,350

TOTAL

4,350

95,676

100,026

2017 $000 Financial Assets at fair value through

profit and loss

Loans and Receivable

s

Financial Liabilities at amortised

cost

Total

Financial assets Cash and cash equivalents Trade debtors and other receivables Investments

845

3

1,470

845

1,470 3

TOTAL

848

1,470

2,318

Financial Liabilities Trade creditors and other payables Loans and borrowings Interest Rate Swaps

3,771

6,272

86,153

6,272

86,153 3,771

TOTAL

3,771

92,425

96,196


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(c) Financial Instrument Risk Management

The Company has exposure to the following risks from its use of financial instruments.

- Credit Risk - Liquidity Risk - Market Risk

Credit Risk

Financial instruments which potentially subject the company to credit risk principally consist of bank balances and accounts receivable. The carrying amount of these financial instruments represents the maximum exposure to credit risk. Management has a credit policy in place under which each new customer is individually analysed for credit worthiness. In order to determine which customers are classified as having payment difficulties the company applies a mix of duration and frequency of default and makes provision for estimated balances considered to be impaired. The company does not require collateral in respect of trade and other receivables. Cash handling is only carried out with the counterparties that have an investment grade credit rating.

Further detail in relation to the credit quality of financial assets is provided

note 21.

Liquidity Risk

Liquidity risk represents the company’s ability to meet its contractual obligations. The company evaluates its liquidity requirements on an ongoing basis. In general, the company generates sufficient cash flows from its operating activities to meet its obligations arising from its financial liabilities and has credit lines in place to cover potential shortfalls and meet capital expenditure requirements.

Market Risk Market risk is the risk that market prices, such as Foreign Exchange Rates

and Interest Rates will affect the Company’s income or the value of it’s holding in

other instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Currency risk is the risk that the fair value of financial instruments will fluctuate

due to a change in foreign exchange.


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Most of the Company transactions are carried out in NZD. To mitigate the Company’s exposure to foreign currency risk, non-NZD cash

flows are monitored and forward exchange contracts are entered into in accordance with the Company’s risk management policies.

Interest Rate Risk

The company enters into derivative arrangements in the ordinary course of business to manage interest rate risks.

The company uses interest rate swaps to hedge its exposure to interest rate

risk arising from financing activities by providing a mix of fixed and floating rate exposure. Derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

Interest rate swap contracts are recognised in the statement of financial

position at their fair value. The gain or loss on re-measurement to fair value is recognised immediately in profit or loss. Where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the hedging relationship.

The principal or contract amount of interest rate swap contracts outstanding at balance date was $54,617,300 (2017: $54,617,300).

Sensitivity Analysis

The following sensitivity analysis assumes the total amount of borrowings

outstanding at year end was outstanding for the whole year. If interest rates were 50 basis points higher/lower and all other variables were held constant the company’s profit would have been $472,500 lower/ higher (2017: $419,433).

17 Capital Risk Management

The Company’s capital includes share capital, debt, reserves and retained earnings. The company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence. The Directors’ objective is to ensure the entity continues as a going concern. Refer to note 19 for the Company’s debt financing and note 11 for the Company’s share capital, including changes from the prior period. The Company meets its objectives for managing capital through its investment decisions on the acquisition, disposal and development of assets.


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The Company’s policy is to maintain the following debt ratios and limited: Target Actual Equity contribution rate Minimum 25% 36% Debt percentage 60 - 75% 65% Debt Service Cover Ratio > 1.0 1.2:1

The exception to the above policy is when there is a temporary movement away from these ratios as approved by the board and lenders to the Company so as to allow the Company to build expansion infrastructure with overbuild for future uptake. The Company has a financial covenant to maintain a Debt Service Cover Ratio of not less than 1 at all times. This covenant is tested annually commencing from 30 June 2018.

18 Measurement of Fair Value

(a) The carrying amount is considered to be the fair value for each financial

instrument.

For those instruments recognised at fair value in the statement of financial position, fair values are determined according to the following hierarchy:

- Quoted market price (level 1) – Financial instruments with quoted prices for identical instruments in active markets.

- Valuation technique using observable inputs (level 2) - Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.

- Valuation technique with significant non-observable inputs (level 3) - Financial instruments valued using models where one or more significant inputs are not observable.

The carry values of the financial assets and liabilities recorded in the financial statements approximate their fair values.

Financial Instruments in level 2 Where derivatives are traded either on exchanges or liquid over-the-counter markets the Company uses the closing price at the reporting date. Normally, the derivatives entered into by the Company are not traded in active markets. The fair value of these contracts are estimated using a valuation technique that maximizes the use of observable market inputs, e.g. market exchange and interest rates (level


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2). Derivatives entered into by the Company consist of foreign currency forward contracts and interest rate swaps. There were no transfers between different levels and no financial instruments fall under levels 1 or 3.


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Maturity Profile of Financial Instruments The maturity profiles of the Company’s financial instruments are disclosed below

As at 30 June 2018

Effective Ave

Interest

Maturity Dates Non Interest Bearing

Total $000

Rate 0-1 Yrs 1-2 Yrs 2-3 Yrs 3-4 Yrs 4-5 Yrs 5+ Yrs Financial Assets Cash & Cash Equivalents

3,074

1,469 3,074

Trade & Other Receivables

1,097 1,097 1,097

Forward Exchange Contracts

Financial liabilities Trade & Other Payables

1,176 1,176 1,176

Borrowings – ASB 5.13% 3,000 3,000 3,000 68,500 77,500 Borrowings – WDC 3.28% 17,000 17,000 Interest Rate Derivatives

4,350 4,350

As at 30 June 2017

Effective Ave

Interest

Maturity Dates Non Interest Bearing

Total $000

Rate 0-1 Yrs 1-2 Yrs 2-3 Yrs 3-4 Yrs 4-5 Yrs 5+ Yrs Financial Assets Cash & Cash Equivalents

845

560 845

Trade & Other Receivables

1,470 1,470 1,470

Forward Exchange Contracts

Financial liabilities Trade & Other Payables

6,272 6,272 6,272

Borrowings – ASB 4.96% 3,000 3,000 3,000 60,153 69,153 Borrowings – WDC 3.58% 17,000 17,000 Interest Rate Derivatives

3,771 3,771


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(b) Measurement of Fair Value – Non Financial Assets

The accounting policies and disclosures require the determination of fair value. Fair values have been determined for measurement and disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair value is disclosed in the notes specific to that asset of liability.

Disclosures are specifically provided below for non-financial assets which are subject to annual fair value re-measurement after initial recognition.

Below analyses the non-financial assets carried at fair value, by a valuation method. The different levels have been defined as below as follows:

- Level 1: Quoted prices (unadjusted) in active markets for identical assets of

liabilities - Level 2: Inputs other than quoted prices included within Level 1 that are

observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices)

- Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs)

Property, plant and equipment An independent valuation of the Irrigation Infrastructure was performed by valuers to determine the fair value as at 30 June 2018.

2018 Level 1

$000

Level 2

$000

Level 3

$000

Total

$000

Irrigation Infrastructure 153,478 153,478 Total carrying amount 153,478 153,478

2017 Level 1

$000

Level 2

$000

Level 3

$000

Total

$000

Irrigation Infrastructure 73,504 73,504 Total carrying amount 73,504 73,504

There were no transfers between levels 1 and 3 during the year

Valuation Techniques used to derive level 3 fair values

There were no transfers between levels 1 and 3 during the year


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The Level 3 fair value of irrigation infrastructure has been derived using optimised depreciated replacement cost. The most significant inputs into this valuation approach include the calculation of replacement costs, assumptions about the useful lives, residual value, and the term of the consents to extract water from the Waitaki River. The replacement costs have been largely determined using recent cost information based on similar projects, local council pipe installation rates, and the original installations costs in 2005 and 2017 escalated by the capital goods price index between 2005 and 2017 and 2018.The useful lives have been derived from observable sources including the Commerce Commission guidelines for electrical equipment and various council asset valuation databases and are disclosed per the depreciation policy. Irrigation equipment has been assumed to have nil residual value due to its specific nature and use. It has been assumed that the local council will renew consents at the time of expiry. A significant increase (decrease) in the suspected useful life of the Irrigation Infrastructure would result in a significantly higher (lower) fair value measurement. A full valuation has been undertaken as at 30 June 2018 of the completed opening irrigation infrastructure. The directors and Rationale Limited have determined that the carrying value of the Company’s Irrigation Infrastructure is not impaired as at 30 June 2018.

Edward Guy of Rationale Ltd was the principal valuer. His relevant qualifications

are as follows:- -Graduate BE (Civil) – University of Auckland 1992 -Graduate BCom – University of Auckland 1994 -Certificate of Proficiency Stage 3 Plant and Machinery Valuation – University of

Auckland 1998 Revaluations The Company engaged Rationale Limited, an accredited valuer that uses the

International Valuation Standards Committee, International Valuation Standards as a reference, to determine the fair value of the Irrigation Infrastructure.

The effective date of the revaluation was 30 June 2018

If irrigation infrastructure had been measured at cost less accumulated depreciation and impairment the carrying amount would have been

Company 2018 $000

2017 $000

Irrigation Infrastructure 158,491 76,687 Total Carrying amount under the cost model 156,180 59,222


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19 Borrowings 2018 2017 $000 $000

Current ASB loans (secured) - - WDC loan (secured) - - _________ __________ $- $- _________ __________

Non Current ASB loans (secured) 77,500 69,153 WDC loan (secured) 17,000 17,000 __________ __________ $94,500 $86,153 __________ __________ Total Borrowings $94,500 $86,153 __________ __________

Repayable as follows:

2018 2017 2018 2017 2018 2017 Less than Between Greater than 1 year 1-5 years 5 years ASB loans (secured) - - 9,000 9,000 68,500 60,153 $000 WDC Loan (secured) - - 17,000 - - 17,000 $000 ________ _______ ________ __________________________ Total $- $- $26,000 $9,000 $68,500 $77,153 ________ _______ ________ __________________________

A new loan facility was agreed with the ASB Bank Limited on the 30th April 2015 and restated in December 2017 to $79,200,000 commencing on the date of the initial drawdown. The new facility is interest only until the 3rd of July 2020 and expires 31st of October 2030. The interest rate averaged 5.13% for the year ended 30 June 2018 (2017: 4.96%).

The Waitaki District Council advanced the company a loan of $17,000,000 and expires on 30th June 2022. Interest on the loan is charged at the Waitaki District Council’s average cost of borrowings based on its average cost of capital as disclosed in the term loan agreement. Interest is calculated and paid monthly. The average interest rate for the period was 3.28% (2017: 3.58%).

The Waitaki District Council Loan and ASB Bank Limited Loans are secured over all present and after-acquired property. They are ranked equally over the property.


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20 Employee entitlements 2018 2017 $000 $000 Balance at beginning of year 53 54 Additional provision (reduction) 14 (1) ______ ______ Balance at end of year $67 $53 ______ ______

This is represented by:

Current liability 67 53 Non-current liability - - ______ ______ Balance at end of year $67 $53 ______ ______

21 Trade & Other Receivables

Trade receivables 1,032 787 Sundry receivables 1 - Prepayments 64 42 GST refund - 641 ________ ________ Total receivables and prepayments $1,097 $1,470 ________ ________

Credit Risk The following table details the aging of the company’s trade receivables at balance

date.

2018 2017 Gross Impairment Gross Impairment $000 $000 $000 $000 Not yet due 1,000 - 703 - Overdue 0-31 days 15 - 32 - Overdue 32-92 days 12 - 25 - Overdue 93-184 days 5 - 28 - ________ _________ _________ _________ Total Trade receivables $1,032 - $787 - ________ _________ _________ _________


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22 Inventories 2018 2017 $000 $000 Parts and Spares 292 203 ________ _______ Balance at end of year $292 $203 ________ _______ 23 Property, plant and equipment Buildings Plant & Irrigation Capital Work Land Equipment Infrastructure in Progress (Cost) (Cost) (Valuation) (Cost) Total 2018 $000 $000 $000 $000 $000 Gross carrying amount Balance 1 July 2017 1,320 490 73,622 69,901 145,333 Additions - 82 73,140 - 73,222 Revalued during year - - 10,250 - 10,250 Disposals - (15) - (69,901) (69,916) Reversal of accumulated Depreciation on revaluation - - (2,659) - (2,659) _________ _________ _________ _________ _________ Balance 30 June 2018 $1,320 $557 $154,353 $- $156,230 _________ _________ _________ _________ _________ Accumulated depreciation and impairment Balance 1 July 2017 - (297) - - (297) Current year depreciation - (69) (2,659) - (2,728) Revalued during year - - - - - Disposals - 8 - - 8 Reversal of accumulated Depreciation on revaluation - - 2,659 - 2,659 _________ _________ _________ _________ _________ Balance 30 June 2018 - $(358) - - $(358) _________ _________ _________ _________ _________

________ _________ _________ _________ _________ Carrying amount 30 June 2018 $1,320 $199 $154,353 $- $155,872 _________ ____________________________ __________


46



41

Property, plant and equipment Buildings Plant & Irrigation Capital Work Land Equipment Infrastructure in Progress (Cost) (Cost) (Valuation) (Cost) Total 2017 $000 $000 $000 $000 $000 Gross carrying amount Balance 1 July 2016 1,320 429 75,716 44,789 122,253 Additions - 61 2,464 25,478 28,003 Revalued during year - - 2,766 - 2,766 Disposals - - - (366) (366) Reversal of accumulated Depreciation on revaluation - - (7,324) - (7,322) _________ _________ _________ _________ _________ Balance 30 June 2017 $1,320 $490 $73,622 $69,901 $145,333 _________ _________ _________ _________ _________ Accumulated depreciation and impairment Balance 1 July 2016 - (248) (5,755) - (6,003) Current year depreciation - (49) (1,569) - (1,618) Revalued during year - - - - - Disposals - - - - - Reversal of accumulated Depreciation on revaluation - - 7,324 - 7,324 _________ _________ _________ _________ _________ Balance 30 June 2017 - $(297) - - $(297) ________ _________ _________ _________ _________ Carrying amount 30 June 2017 $1,320 $193 $73,622 $69,901 $145,036 _________ _________ __________ _________ __________ Interest of $370,939 has been capitalised during the current year (2017:$1,360,181).


47



42

24. Intangible Assets The company’s intangible assets comprise acquired Water Permits. Movements for intangible assets are as follows: 2018 Water Permits $000 Gross carrying amount Balance 1 July 2017 315 Additions- separately acquired - ________ Balance 30 June 2018 315 Amortisation and impairment Balance 1 July 2017 100 Amortisation 15 ________ Balance 30 June 2018 115 ________ Carrying amount 30 June 2018 $200 ________ 2017 Water Permits $ Gross carrying amount Balance 1 July 2016 315 Additions- separately acquired - ________ Balance 30 June 2017 315 Amortisation and impairment Balance 1 July 2016 85 Amortisation 15 ________ Balance 30 June 2017 100 ________ Carrying amount 30 June 2017 $215 ________ All intangible assets are included in the floating charge security in favour of the

company’s lenders.


48



43

25 Share-based Transactions There were no share based transaction during the year. 26 Investments 2018 2017 $000 $000 Investments in unlisted companies 3 3 ______ ______ Total Investments $3 $3 ______ ______ Investments in unlisted companies are stated at cost because fair value cannot be

reliably measured. 27 Derivative financial instruments

2018 $000 2017 $000 Assets Liabilities Assets Liabilities Interest Rate Swaps - 4,350 - 3,771 Forward Foreign Exchange Contracts

- - - -

Total - 4,350 - 3,771 Less non-current portion: Interest Rate Swaps - 4,350 - 3,771 Forward Foreign Exchange Contracts

- - - -

- 4,350 - 3,771 Current Portion - - - -

a) Forward exchange contracts The notional principal amounts of the outstanding forward exchange contracts at 30

June 2018 were $Nil (2017:$Nil). The forward exchange contracts are designated as fair value through the profit and loss with gains and losses recognised in the Statement of Comprehensive Income per note 5.

b) Interest rate swaps The notional principal amounts of the outstanding interest rate swap contracts at 30

June 2017 were $54,617,300 (2017 $54,617,300). The interest rate swaps are designated as fair value through the profit and loss with gains and losses recognised in the Statement of Comprehensive Income per note 5.


49



44

28 Reconciliation of reported surplus after taxation with cash flows from operating activities Note 2018 2017 $000 $000 Net after tax profit/(loss) for the year 6,784 2,030

Adjustments for: Capitalised interest accrued (371) (1,360) Depreciation 23 2,728 1,617 Depreciation recovered 8 - Losses on disposal - - Amortisation of intangible property 24 15 15 Fair value loss (gain) on financial instruments - (6) Fair value loss (gain) on forward exchange contracts 579 (2,311) Changes in assets and liabilities: Increase (decrease) in payables (365) (3,207) Increase (decrease) in Deferred taxation payable 2,116 - (Increase) decrease in inventory 74 37 GST received (paid) 756 228 (Increase) decrease in receivables (268) (24) Resident Withholding Tax Paid - (10) Revaluation (10,250) - Income Tax refunded 10 29 _________ _________ Net cash flows from operating activities $1,814 $(2,962) _________ _________ 29 Imputation credit account 2018 2017 $000 $000

Balance at beginning of year 10 29 Resident withholding tax received - 10 Income tax payments/(refunds) during the year (10) (29) ______ ______ Balance at end of year $0 $10 ______ ______

30 Related parties

a) Inter entity transactions and balances 2018 2017 $000 $000 Services provided to Waitaki Irrigators Collective Limited Nil Nil Services received from Waitaki Irrigators Collective Limited 39 42 Amounts receivable from Waitaki Irrigators Collective Limited Nil Nil Amounts due to Waitaki Irrigators Collective Limited Nil Nil



45

Transactions with directors are conducted on normal commercial terms no more favourable than other shareholders.

The company has a 16.67% equity interest in Waitaki Irrigators Collective Limited.


50

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52



48

31 Key Management Compensation 2018 2017 $000 $000 Salaries and other short term benefits 230 230 ________ ________ Total Key Management Personnel compensation $230 $230 ________ ________

32 Contingent liabilities As at 30 June 2018 there are no contingent liabilities.

33 Commitments

Capital Commitments 2018 2017 Estimated commitments for the acquisition $000 $000 of property, plant and equipment contracted for at balance date but not provided for. $397 $190 _________ __________

Operating Lease Commitments Lease commitments under non-cancellable operating leases: Less than one year 20 12 Between 1 and 5 years 29 -

_______ _______ Total operating lease commitments $49 $12 _______ _______ Operating lease commitments relate to buildings and equipment. They:

• are for various terms with rights of renewal: and • have normal provisions for periodic rent reviews to market rates. 34 Events after Balance Date There are no events after balance date to disclose.


53



48

31 Key Management Compensation 2018 2017 $000 $000 Salaries and other short term benefits 230 230 ________ ________ Total Key Management Personnel compensation $230 $230 ________ ________

32 Contingent liabilities As at 30 June 2018 there are no contingent liabilities.

33 Commitments

Capital Commitments 2018 2017 Estimated commitments for the acquisition $000 $000 of property, plant and equipment contracted for at balance date but not provided for. $397 $190 _________ __________

Operating Lease Commitments Lease commitments under non-cancellable operating leases: Less than one year 20 12 Between 1 and 5 years 29 -

_______ _______ Total operating lease commitments $49 $12 _______ _______ Operating lease commitments relate to buildings and equipment. They:

• are for various terms with rights of renewal: and • have normal provisions for periodic rent reviews to market rates. 34 Events after Balance Date There are no events after balance date to disclose. 35 Standards and interpretations issued

The Company has prepared the financial statements in accordance with the New Zealand International Financial Reporting Standards. The following new accounting

The North Otago Irrigation Scheme was officially opened in October 2006 after a four-year consents, planning, investment and construction process.

Delivering OpportunitiesTogether

www.noic.co.nz

Documents

Annual Report 2018 - NOIC · ANNUAL REPORT 2018 6 Chairperson’s report It is my privilege to present you with the annual report of the North Otago Irrigation Company Limited for