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LandcorpLANDCORP FARMING LIMITED

ANNUAL REPORT 2012

WORKINGTOGETHER



COVER: Business Manager Kirsty Dickens, Livestock

Marketing Manager Andrew Hall (middle) and

Farm Manager Ian Brown on the Short Rd block,

Cheltenham Downs, March 2012.

CONTENTS

2 PERFORMANCE IN 2011/12

3 FINANCIAL OUTLOOK

4 DIRECTORS’ REPORT

8 CHIEF EXECUTIVE’S REVIEW 16 PEOPLE AND CAPABILITY

DEVELOPMENT

19 TEAMWORK TO ANSWERTHE HARD QUESTIONS

20 FROM FOREST TO HIGHPERFORMANCE DAIRYING

23 LAND MANAGEMENTTO PROTECT LAKE TAUPO

24 LAMB PRODUCTION FORTHE VALUE CHAIN

27 FARMING SUCCESS INTHE COLD AND WET

30 LAND SUPPLY FORRURAL LIFESTYLES

32 AMONG THE BEST IN FARMING

34 BOARD OF DIRECTORS

36 EXECUTIVE GROUP

37 CORPORATE GOVERNANCE

39 FINANCIAL STATEMENTS ANDDISCLOSURE INFORMATION

88 AUDIT REPORT

89 COMPANIES ACT DISCLOSURES

92 DIRECTORY

ISSN 1175-4206

LANDCORP FARMING LIMITED (Landcorp) is a State-OwnedEnterprise. It is New Zealand’slargest farmer, running 1.5 millionstock units on 119 propertieswith a total land area of 375,681hectares owned and leased. It hasthree active subsidiaries.

LANDCORP ESTATES LTD developsand sells land (normally with jointventure partners) which is suitablefor higher value use than farming;and

LANDCORP HOLDINGS LTD ownsLandcorp property protected fromsale under an agreement with theCrown.

LANDCORP PASTORAL LTD holdsLandcorp's investment in the FocusGenetics Limited Partnership.



LANDCORP WORKSWITH OTHERS TO BE

NEW ZEALAND’S BESTLIVESTOCK FARMER.



2007 2008 2009 2010 2011

45

40

35

30

25

20

15

10

5

0

1 4 . 9

1 1 . 0

6 . 9 1

0 . 0

4 2 . 2

2012

2 7 . 0

2007 2008 2009 2010 2011 2012

1 2 . 0

1 3 . 0

1 0 . 0

1 8 . 0

2 7 . 5

30

25

20

15

10

5

0

2 0 . 0

NET OPERATING PROFITDollars in millions

DIVIDEND DECLAREDDollars in millions

PERFORMANCE

IN 2011/12

KEY FINANCIAL DATA

Dollars in millions unless otherwise stated 2011/12 2010/11 2009/10 2008/09 2007/08

Total revenue 215.7 218.5 169.9 174.1 163.8

Net operating profit 27.0 42.2 10.0 6.9 11.0

Total shareholder return 7.8 132.5 (112.5) (76.0) 275.7

Total shareholder return /Average shareholders’ funds*

0.5% 9.4% (8.1%) (5.9%) 21.1%

Dividend declared 20.0 27.5 18.0 10.0 13.0

Total assets 1,663.0 1,663.0 1,521.9 1,668.7 1,728.8

Shareholders’ funds*/ Total assets 87.2% 88.4% 87.9% 86.9% 87.5%

KEY OPERATING DATA

2011/12 2010/11 2009/10 2008/09 2007/08

Total hectares farmed (owned and leased) 375,681 376,156 374,898 374,948 372,259

Total stock units at 30 June 1,486,115 1,496,526 1,507,400 1,533,069 1,555,426

Permanent employees at 30 June 573 599 584 599 575

* Includes redeemable preference shares.

2

WORKING TOGETHER



Landcorp Farming expects product prices in

2012/13 to be more volatile and generally

lower than in the previous year. This will

reflect the continued negative impact of

the Global Financial Crisis on demand

in European, North American and Asia

economies. Longer term, the company

expects continued growth in global demand

for New Zealand’s high quality food products.

This will support product prices well above

current levels, especially as Landcorp andother farmers align production more closely

with market requirements.

New Zealand exchange rates will continue

having a major impact on income from

exporting. Throughout 2011/12, New

Zealand’s trade-weighted index averaged

around 5 per cent higher than the previous year. Exchange rate depreciation would be ofsubstantial benefit to all farmers.

The 2012/13 production season has startedwith Landcorp’s capital stock in generally

excellent condition after another relativelymild, albeit wet, winter. The companycontinues to put emphasis on good nutritionfor animals year-round, this being reflectedin higher production volumes of milk, meatand wool. There is also a strong focus on

controlling costs associated with increasedproduction. Prices for fertiliser, fuel andsupplementary feed remain a key issue.

On current budgets, and without anyclimatic setbacks, Landcorp expects netoperating profit for 2012/13 to be around

$12.7 million. The company will seek to

sell farms and use the released funds for

a special dividend to the shareholder and

for the purchase of properties for further

development. On current prices and provided

land sales are realised, the net operating

profit is expected to support a dividend of

approximately $42.0 million for 2012/13.

This year will see Landcorp take further

strategic initiatives, notably a planned joint venture with Shanghai Pengxin and

other dairying developments. Landcorp will

increase its capital expenditure in 2012/13

and beyond, with some related growth in

bank borrowing. The company will maintain

conservative debt ratios, consistent with its

established balance sheet policy.

FINANCIAL OUTLOOK

FOR 2012/13

TARGETS FOR 2012/13

As a State-Owned Enterprise, Landcorp Farming

prepares a Statement of Corporate Intent (SCI) each year, covering its objectives and strategies for the

three years ahead. The 2012 SCI includes targets for

financial performance in the year to 30 June 2013 as

shown in the table (right). These targets are subject

to the following assumptions:

• The Global Financial Crisis has a continued

negative impact on demand for farm products,

this reflected in lower global prices;

• Economic growth in New Zealand remains

subdued;

• New Zealand exchange rates remain volatile

and high;

• Production input costs, particularly fertiliser andfuel, remain volatile and high;

• Rural land values stabilise at levels lower than in

the recent past, better reflecting economic returns

on productive land use;

• The costs of water management increase, including

those for capturing and reticulating water for

irrigation, and for the discharging of waste water at

higher standards of environmental protection; and

• Land owned by Landcorp and likely to be subject

to claims under the Treaty of Waitangi is covered

by a new protocol with the Office of Treaty

Settlements. Furthermore, Landcorp's Protected

Land Agreement with the Crown continues to

govern the operational management of eight farms

under ownership of Landcorp Holdings Limited.

SHAREHOLDER RETURNSSCI target

2012/13Actual

2011/12SCI target2011/12

Net operating profit $12.7 million $27.0 million $16.3 million

Total shareholder return aftertax as a percentage of averageshareholders’ equity

4.8% 0.5% 6.4%

Dividend yield¹ (Ordinary only) 0.6% 1.4% 1.0%

Dividend payout¹ (Ordinary and special) 190.4% 52.8% 90.7%

Return on equity adjusted forIFRS fair value movements andasset revaluations²

4.8%* 7.4% 6.6%

PROFITABILITY

Return on capital employed³ 5.4% 2.8% 10.3%

Operating margin 19.4%* 23.4% 24.6%

Economic value added 0.01% (4.6%) 1.7%

Dividends – Group (Ordinary and special) $42.0 million $20.0 million $15.0 million

LEVERAGE

Gearing ratio 10.5% 10.6% 11.6%

Interest cover 3.36 times 4.94 times 3.85 times

Solvency 1.22 times* 1.22 times 1.94 times

CAPITAL

Net capital expenditure $15.0 million $32.4 million $22.0 million

1 Dividends are for years ending 30 June, payment to the shareholders occurring in October.2 Net operating profit / Average shareholders’ equity less revaluation reserves.3 Earnings before interest and tax / Average shareholders’ equity less revaluation reserves.

* These are the standardised reporting measures required by the Shareholder for SOEs.

32012 | ANNUAL REPORT



Warren LarsenDEPUTY CHAIRMAN

Bill BaylisCHAIRMAN

DIRECTORS'REPORT

LANDCORP FARMING IS MAKING SOLID PROGRESS IN ITS MISSION TO BE

NEW ZEALAND’S BEST LIVESTOCK FARMER. WE HAVE DELIVERED POSITIVE

FINANCIAL RESULTS FOR THE PAST YEAR, AND WE CONTINUE WITH INITIATIVES

FOR STRENGTHENING THE COMPANY’S PERFORMANCE IN ECONOMIC,

ENVIRONMENTAL AND SOCIAL TERMS.

Landcorp strategy for 2012/13 and beyond will build on progress made over the past decade –

and it will lead us to work closely with others in joint ventures, supply chain partnerships and

government-led programmes over the years ahead.

In all initiatives, we will remain committed to the highest standards of environmental

protection and animal welfare. Landcorp sees these as fundamental to New Zealand’s future

growth and prosperity as a food and fibre-producing nation.

Financial Results

Landcorp made a net operating profit before tax of $27.0 million for the year ended 30 June2012. This was down from the 2010/11 record result ($42.2 million) but well ahead of budget

and prior years (see Key Financial Data, page 3). On this basis, Landcorp will pay a $20.0 million

cash dividend to the shareholders for 2011/12, funded entirely from operations. This dividend

is a very pleasing contribution by Landcorp to all New Zealand at a time with continued slow

growth in the economy and in government revenues.

The $27.0 million operating result was reflected in a $7.8 million gain in the company’s

shareholder value for the latest year. This figure (also referred to as total comprehensive

income) included a $13.3 million gain on the revaluation of land and improvements, along

with unrealised losses of $39.2 million on the revaluation of livestock, forests and financial

instruments.

Landcorp continues to target higher levels of productivity, growth in gross revenue and

satisfactory rates of return on invested funds. Measures for these are included in our Balanced

Scorecard (see right and following pages). Improvements are evident in various areas of the

scorecard, reflecting the progress made within Landcorp and the year’s generally favourable

growing conditions.

Recent Initiatives

During 2011/12, we began or continued major initiatives for further growth in dairying. We

are delighted to have a joint venture agreement with Shanghai Pengxin of China, buyer of

the 16 so-called Crafar farms under sale by receivers. Landcorp and Shanghai Pengxin intend

forming a joint venture company, Milk New Zealand Farm Management Limited, to operate the

farms and explore other opportunities for growth in dairy production in this country. We will

provide livestock and operational capabilities to achieve substantial improvement in the farms'

economic, environment and social performance. Shanghai Pengxin will be an active investor,and the two parties will share revenues and operating expenses.

4

WORKING TOGETHER



Financial

OBJECTIVE MEASURE 2011/12TARGET

2011/12ACTUAL

2008-2012AVERAGE

Maintaingrowthin grossrevenue

Gross revenuepercentage growthper annum basedon 2000/01 prices

5.0% 6.3% 2.1%

Landcorp grew revenue through increased production of meat and milk. This is aresult of good growing conditions and sound management practices.

Maintain

satisfactoryreturnon fundsinvested(RoFI)

Total Shareholder

Return to exceedweighted averagecost of capital(WACC)

WACC

+1.0%

WACC

(4.6%)

WACC

+2.6%

This was driven by the decrease in the market value of sheep, beef, dairy cattleand deer.

Improveproductivity

The value of farmoutputs as apercentage of totalinputs includingoperating expensesand the cost ofinvested capital

4.0% 2.6% 1.7%

Productivity is lower than target but well ahead of previous years due to the

increase in production.

TOTAL SHAREHOLDERS’ RETURN ON AVERAGESHAREHOLDERS’ FUNDS

2008 20102009 2011 2012

25%

20%

15%

10%

5%

0%

–5%

–10%

–15%

5 year average

1990 199419 92 19 96 1 998 2 00 0 200 2 200 4 200 6 2008 2 010 2012Declared

500

450

400

350

300

250

200

150

100

50

0

CUMULATIVE DIVIDENDSDollars in millions

$20.0 MILLIONDIVIDEND

$27.0 MILLIONNET OPERATINGPROFIT

The Balanced Scorecard reports key performanceindicators that are central to Landcorp Farming’sstrategic business planning processes, andthat reflects the company’s commitment tosustainability and Corporate Social Responsibility(CSR). In addition to key financial indicators, theScorecard reports on Landcorp’s performance

in maintaining and improving the productivity of its farms, and inmanaging and reducing their environmental impacts. It also reportsperformance in relation to employees and customers.

Landcorp’s strategic planning and reporting (internal and external)takes full account of requirements under all relevant New Zealandstatutes, most notably the State-Owned Enterprises (SOE) Act 1986,and the Owner's Expectation Manual, as well as the company’s Mission,Vision and Values, its current Statement of Corporate Intent and theGlobal Reporting Initiative (GRI) guidelines of relevance to large-scaleagricultural business. These requirements, philosophies and guidelines

are embedded in Landcorp’s FarmPride® programme for qualityassurance on all farms, its WorkSafe programme and training activitiesthat encompass all employees.

BALANCEDSCORECARD2012




Other initiatives during 2011/12 included the development of

Cheltenham Downs, our large-scale sheep and beef finishing

property in the Manawatu. The first year’s production exceeded

expectations, with the property becoming an important part of

Landcorp’s value chain approach to export lamb marketing (see

pages 24–26).

We continue to take initiatives to protect and enhance natural

environments on and near Landcorp farms, with a particular focus

on water quality. The Wairakei Estate development is an excellent

example of how intensive dairying can be accompanied by strongprotection for waterways in many areas throughout New Zealand.

Landcorp is fully supportive of the Lake Taupo Protection Trust

and its mission to reduce nitrite levels in run-off to the lake.

Initiatives during 2011/12 have included agreements with the Trust

to withdraw from livestock farming in the Taupo catchment (see

page 23).

Productivity gain remains a core focus for Landcorp. The latest

year has seen further progress on genetic improvement in our

herds and flocks including the formation of Focus Genetics Limited

Partnership (LP); the deployment of efficient irrigation and pasture

management systems; the roll-out of information technology for

more precise and efficient farm management; support for the FarmIQ initiative in red meat; and the growth of knowledge and skills

among our people. All these programmes contribute to productivity

growth within Landcorp – and to the company’s higher performance

in future.

Strategy

We have recently reviewed and confirmed Landcorp's strategy

for the medium and longer terms. Further to our objectives and

responsibilities as a State-Owned Enterprise, Landcorp defines its

mission “to be New Zealand’s best livestock farmer, economically,

environmentally and socially”.

In broad terms, this means continued strong focus on best practice

farming for each livestock species and on optimising returns from

on-farm forestry. Further, we will create added value in food, fibreand service-based products. We will identify and meet customer

and consumer needs. Landcorp’s land use must be efficient,

effective and sustainable – and alongside this, we will optimise value

for the shareholders by subdividing and selling land where this is the

best option.

The mission confirms Landcorp’s wider obligations to New Zealand,

including our role as facilitator in the transfer of farming best

practices across the nation’s pastoral sector. It also confirms our

commitment to developing people, inside and outside the company,

so they acquire and apply best-practice knowledge and skills

agriculture-wide. To facilitate this, Landcorp will strive to have a

company culture of innovation.

Current initiatives support the strategy in many ways. The Chief

Executive will report further on key aspects in his Review (pages

8–14). As we note above, the strategy is leading Landcorp to work

more with other parties where this better enables us to become

New Zealand’s best livestock farmer and to create greater value for

the shareholders. Working with others also enables us to share the

benefits of our performance.

| WAIMAKARIRI dairy complex.

DIRECTORS'REPORTCONTINUED

6

WORKING TOGETHER



The Future

We face the future with confidence despite the current softening

of prices for protein and fibre on global markets. Landcorp accepts

the challenge facing all New Zealand primary producers – to

develop products, production systems and supply chains that

deliver value beyond the vagaries of commodity pricing.

In 2011/12 we took further strides in that direction with growth in

lamb supply on fixed price contracts, much of this into the high-

value end of the United Kingdom’s retail meat market. Landcorpwill increasingly seek to position itself in the same way on products

where New Zealand accounts for a large share of world trade – and

where Landcorp is a New Zealand producer of significant volume

and quality. Our products can achieve greater recognition in the

marketplace. Dairy and venison are other obvious examples.

The joint venture with Shanghai Pengxin is a key strategic

development for Landcorp, giving us unique connection to the

Chinese market. We will implement best practice dairying on the

farms and in the years ahead, look at forming New Zealand-based

joint ventures for agricultural opportunities with Shanghai Pengxin

in China. Landcorp is taking the same vigorous approach in the red

meat industry, and in the development of its operations across-

the-board for best performance in economic, environmental andsocial terms.

People

Landcorp people are in great heart after another successful year

and as they progress the company’s various initiatives. The Board

congratulates the winners of awards in this year’s Dairy Industry

Awards and the Ballance Farm Environment Awards (see pages 32, 33).

We thank Chris Kelly, the management team and all other Landcorp

employees for their commitment and hard work during 2011/12.

We also thank three retiring directors for huge contributions to

Landcorp over recent years. Previous Chairman Hon. Jim Suttonhas retired after six years’ Board membership. Marise James and

Jane Mitchell have also retired, having served since 2003 and 2009

respectively. We welcome three recently appointed directors: Nikki

Davies-Colley, Chris Day and Pauline Lockett.

At Landcorp, “working together” is first and foremost about employees

and directors sharing their knowledge, experience and commitment to

achieve great results for the company and for New Zealand. We, along

with our external partners, can have great confidence in the future.

Bill Baylis Warren Larsen

Chairman Deputy Chairman CNZM

27 August 2012




LANDCORP FARMING INCREASED PRODUCTION, CONTROLLED COSTS AND FURTHER

IMPLEMENTED STRATEGIC INITIATIVES DURING 2011/12. THE NET OPERATING PROFIT

OF $27.0 MILLION WAS A VERY PLEASING RESULT, ESPECIALLY IN A YEAR WHERE GLOBAL

TRENDS IN PRODUCT PRICING DECLINED FOR NEW ZEALAND FARMERS.

Chris KellyCHIEF EXECUTIVE

CHIEFEXECUTIVE'SREVIEW

Landcorp will hold course through 2012/13, although falling product

prices and a continued strong New Zealand dollar will be significant

challenges. We remain focused on revenues, earnings and shareholder

value – and on growth in these through: increased production; higher

productivity; development of integrated value chains for food and fibre

products; optimised use of land and other resources; and protection of

the environment.

We expect substantial developments in dairying in the years ahead

through our planned joint venture with Shanghai Pengxin of China

and through enlargement of established complexes, includingWairakei Estate in the central North Island. These developments will

encompass every element of Landcorp strategy – and their success

will significantly add to the company’s future performance.

Performance

The $27.0 million net operating profit before tax for 2011/12 was

down from the previous year’s $42.2 million record, mainly because

of the revenue impact of significant reductions in milk and timber

prices. Total revenue from farm production during 2011/12 declined 4

per cent to $210.5 million (2010/11: $219.4 million). This was despite

volume growth in all areas of the company’s land-based production.

Total operating expenses during 2011/12 increased 7.6 per cent to$178.5 million (2010/11: $165.8 million), while net finance costs were

slightly lower at $10.2 million.

Landcorp recorded a much reduced shareholder value gain (also

referred to as “total comprehensive income”) of $7.8 million for

2011/12 under the impact of revaluation losses on livestock, forests

and financial instruments. These losses largely reflected the trend

in product pricing – and they were, in turn, offset by 30 June 2012

revaluation gains on land and improvements. Landcorp’s shareholder

value result for 2011/12 included no profit or loss on the sale of farm

land during the year in contrast to 2010/11 ($10.3 million profit on

land sales).

Production

Most parts of New Zealand saw favourable growing conditions

through 2011/12. This, along with best practice management of

pasture and animals, led to increased production across all Landcorp’s

livestock types. New Zealand-wide, a generally mild winter in

2011 was followed by a sunny spring and, for a period, unusually

dry conditions in the upper North Island and the lower South. The

situation improved thereafter, with New Zealand experiencing

summer and autumn conditions that were generally wetter, and a

cooler summer than usual. This supported a complete recovery in

Landcorp flocks and herds which had been impacted by the severe

droughts of 2007 and 2008. Reproductive rates were high in 2011, the

company’s national lambing rate up to 139 per cent and calving above

89 per cent.

LANDCORP FARMING LIMITED AND SUBSIDIARIES

FINANCIAL PERFORMANCE

Dollars in millions unless otherwise stated 2011/12 2010/11

Total operating income 215.7 218.5

Net operating profit 27.0 42.2

Total shareholders’ return 7.8 132.5

Net profit on equity investment 10.8% 17.0%

(share capital and retained earnings)

Total shareholders’ return on average shareholders’ funds 0.5% 9.4%

(including redeemable preference shares)

8

WORKING TOGETHER



100

90

80

70

60

50

40

30

20

10

0

Milk Cattle Sheep

Deer Other

2 003 2 00 4 20 05 20 06 2 00 7 2 008 2 00 9 2 01 0 20 11 2 01 2

REVENUE SOURCESDollars in millions

Landcorp has a widely diversified revenue base across New Zealand livestock

farming. Revenue reductions in milk and beef during 2011/12 were largely

offset by growth in sheepmeat, deer and other products. Overall, Landcorp

aims for dairying and deer operations to contribute around 50 per cent

of total revenues over the long term. Consistent with this, the company

seeks to improve the dollar value of income from sheep and beef farming.

Fluctuation will always be expected in a particular revenue line from one

year to the next, depending on changes in product prices and production

volumes.


Operational


2011/12ACTUAL

2008-2012AVERAGE

Maintaineffectivefarmed area

Total hectares infarm production 173,396 174,077 172,883

The total includes all land in pasture or crop, and excludes areas of conservationretirement, riparian strips, forest plantations and service areas with buildings.

Sustainablyimprovepastureproduction andutilisation

Stock units pereffective hectareat 30 June

8.6 8.5 8.8

The stocking rate per hectare was close to target. Emphasis was placed onoptimising production and returns per animal.

Sustainablyincrease totalstock units

Total closingstock units

1,485,499 1,486,115 1,510,573

Good growing conditions in 2011/12 were a contributing factor to closing stockunits being above target.

Increaseproductionvolumes

Milksolidsproduction(tonnes)

13,030 13,357 11,838

Good growing conditions in the later part of the seasonresulted in the target being exceeded.

Sheep meatproduction(tonnes)

9,956 10,176 10,094

Higher than expected number of carry-over trade lambscombined with good growing conditions and greater emphasison production per animal led to increased production. Inaddition, significantly fewer store lambs were sold. South

Island lamb production was adversely affected by dry summerconditions but this was more than offset by favourable NorthIsland growing conditions.

Beef production(tonnes)

8,833 9,715 10,481

Higher than expected opening numbers combined with goodgrowing conditions and greater emphasis on production peranimal led to increased production. Weaning weights in the2012 autumn were ahead of target.

Venison production(tonnes)

2,316 2,258 2,324

Lower than expected opening numbers and lower fawningresulted in the target not being meet.

Timber harvested(tonnes)

100,000 165,091 102,801

The 2011/12 harvest included harvest deferred from previous years.

Wool production(tonnes)

2,766 2,924 2,855

Higher than expected opening numbers, combined with goodgrowing conditions and condition of animals, led to increasedproduction.

Velvet production(tonnes)

9.9 12.0 11.6

Improved market prices and delayed stock killing, coupledhigher harvesting rates, led to higher production during2011/12.

Reduce labourutilisation overtime

Opening (1 July)stock units perpermanentemployee

2,514 2,612 2,648

Higher than expected opening numbers contributed to the target being exceeded.

Landcorp achieved record milksolids production of 13,400 tonnes

for the year (2010/11:12,500 tonnes). At the season’s peak in

November the company was milking 35,922 cows, a small increase

from the previous year. Lamb and beef cattle numbers increased

significantly. The company’s supply of prime-weight Lambs to

processing companies was up 16 per cent during 2011/12, while

supply of steers for beef processing increased 7 per cent. Deer

numbers supplied for processing were up 11 per cent while velvet

sales during 2011/12 lifted 83 per cent. Wool production increased

6 per cent (to 2,924 tonnes) and timber increased 39 per cent

(165,091 tonnes).

Revenues

Growth in production largely offset the impact of some falling

product prices especially during the second half of 2011/12. Milk

revenue was down 12.3% to $83.0 million (2010/11: $94.6 million)

as contraction in dairy company payouts more than offset the gains

from record milk production in the latest year. Landcorp expects

2011/12 total payouts to be significantly down from the previous year's $7.60 per kilogram of milksolids.




Lamb prices were up overall for the year, although they decreased

significantly in the second half. Prices received by Landcorp were on

average 5 per cent ahead of 2010/11, this gain partly a reflection

of the company’s substantial move into greater supply of Northern

Hemisphere retailers on fixed price contracts. Of approximately

430,000 lambs sold for processing, more than 70 per cent were

covered by supply contracts. Higher prices and volume growth saw

Landcorp’s sheepmeat revenue climb to $59.4 million in the latest

year (2010/11: $51.3 million).

Conversely wool prices, however, could not hold gains made in the

previous year and Landcorp’s wool revenue slipped back to $10.2

million (2010/11: $10.9 million). The average of prices received by the

company was down 7.4 per cent, more than offsetting the latest year’s

increased wool production. Forestry revenue plunged to $1.9 million

(2010/11: $5.2 million) as log prices also fell during 2011/12 to more

than offset a substantial increase in the volume of Landcorp’s timber

production.

Elsewhere in the livestock sector, beef prices softened in both the

prime and store markets with a resulting slide in the company’s beef

revenue to $37.2 million (2010/11: $40.1 million). Venison prices

were up in the latest year, on average 6 per cent, and the rebuilding of

Landcorp herds saw increased venison and velvet production. Overall,

deer revenue rose to $17.7 million (2010/11: $16.7 million).

Expenses

Dairy and livestock production growth drove a 7.6 per cent increase in

operating expenses to $178.5 million for 2011/12 (2010/11: $165.8

million). Higher spending on pasture maintenance and supplementary

feed contributed most to the increase, with farm working expenses up

to $82.5 million (2010/11: $74 million). Cost pressures remain high

across New Zealand agriculture, and Landcorp retains tight control of

budgets and spending at all levels.

Capital expenditure in the latest year was down to $50.7 million

(2010/11: $57.8 million). The figure is expected to increase

significantly in 2012/13 as Landcorp invests in the joint venture with

Shanghai Pengxin and in the further dairying development on Wairakei

Estate. In the latest year, net interest expense eased to $10.2 million

in 2011/12 (2010/11: $10.4 million) due mainly to New Zealand’s

historically low interest rates. Landcorp increased its bank debt during

the year with continued on-farm investment. At 30 June 2012, the

company’s bank debt was $171.3 million (2010/11: $157.2 million).

Balance sheet

Total assets were static at the latest balance date at $1,663.0 million

(2011: $1,663.0 million), due mainly to lower valuations on Landcorp

livestock and forests offset by a small increase in land values. The ratio

of shareholders’ funds–to-total-assets, at 87.2 per cent, was consistent

with recent years and with Landcorp’s preferred conservative balance

sheet structure. Higher capital expenditure in the coming three years is

expected to increase bank borrowing. Landcorp planning for this next

period of growth is entirely consistent with current banking covenants,

and with the constant need for borrowing capacity to address any

unforeseen negative developments in the business or product markets.

Subsidiary companies

Landcorp Estates Limited increased its sales activity during 2011/12

as property markets picked up New Zealand-wide. The company

settled eight sales, including sections on the Wakelins Riverfront Estate

(Paihia), Moturau Heights (Lake Manapouri) and Lakeside Terraces

(Taupo) developments. Increased revenue and a reduction in interest

expenses led Landcorp Estates to a much reduced net loss after tax of

$116,000 for the latest year (2010/11: $421,000 loss).

Landcorp Holdings Limited, made a net profit after tax of $536,000

for the latest year (2010/11: $811,000). A third subsidiary, Landcorp

Pastoral, is the vehicle for Landcorp’s investment in Focus Genetics

Partnership Limited (LP), the joint venture established with Rissington

Breedline in 2011. Landcorp Pastoral recorded a net profit after tax of$510,000 for 2011/12.


CAPITAL STRUCTURE

Dollars in millions unless otherwise stated 2011/12 2010/11

Total assets 1,663.0 1,663.0

Total bank loans 171.3 157.2

Shareholders’ funds1 1,449.7 1,469.4

Shareholders’ funds1 as % of total assets 87.2% 88.4%

1 Includes redeemable preference shares

CHIEFEXECUTIVE'S

REVIEWCONTINUED

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WORKING TOGETHER




Operational (CONTINUED)


2011/12ACTUAL

2008-2012AVERAGE

Increasereproductiveefficiency

Lambingpercentage 137.7% 139.2% 133.3%

Good stock condition, feed supply and favourable springweather resulted in higher than expected lambing percentage.A series of National Sheep Management workshops focusedon continuously improving performance.

Calving percentage 90.4% 89.1% 86.9%

The 2011/12 calving percentage was close to target andhigher than previous years. Landcorp is seeking improved beefcattle performance through Cows for Profit workshops forfarm staff.

Fawning percentage 88.4% 86.8% 85.8%

Landcorp continues to focus on the fawning ability of hindsin large scale herds. Improvement over previous years isencouraging and reflects ongoing progress. Landcorp hasconfidence that further improvement will be achieved.

Promotebest practicein all farmoperations

FarmPride® auditratings – annualaverage for allfarms.

8 9 8

Landcorp’s livestock farms are audited bi-annually and dairy farms annually underthe FarmPride® quality assurance programme, with a score of 8 out of 10 beingregarded as satisfactory compliance. Landcorp continues to raise its standards anda programme exists to address non-compliance issues.

Customers


2011/12ACTUAL

2008-2012AVERAGE

Produceanimals andfarm productsthat are “fit forpurpose” whensupplied toprocessors andend markets

Average prime lambcarcass weight (kg)

17.5 17.9 17.2

Ideal growing conditions complemented Landcorp's farmingsystems to help deliver a record average weight in 2011/12.

Average primecattle carcassweight (kg)

258.1 275.7 269.2

Cattle production was also a record, due largely to Landcorp'sstrong feed position and sound farming systems.

Average prime deercarcass weight (kg)

53.0 55.0 53.8

Deer production was also a record, due largely to the strongfeed position and farming systems.

Quality

Assurance onanimals andfarm products

FarmPride® audit

ratings – annualaverage for allfarms for assuranceon quality tocustomers

8 9 8

As noted above, under the FarmPride® quality assurance programme, a score of 8out of 10 is regarded as satisfactory compliance.

Promote theLandcorp brand

Investment in ruralsector sponsorships(dollars)

140,000 129,600 123,718

Landcorp continues to support various programmes of benefit to the rural sector.In 2011/12 these included scholarships at the Taratahi Ag Training Centre and atLincoln University.

Strategic Initiatives

In 2012/13 and beyond Landcorp will seek continuous improvement in

its current operations, and proceed with various strategic initiatives for

increasing production and productivity, for developing value chains, for

optimising land use and for protecting the environment. We will also

continue developing the capabilities of all employees, and promoting

their health and safety. Landcorp has built a culture of workplace

safety. We will maintain that focus through employee training, and the

continued application of new knowledge about health and safety infarming.

Increased production

Landcorp will expand its farm production within both existing

operations and new developments. The latter includes the Shanghai

Pengxin joint venture and expansion of dairying on Wairakei Estate.

We have comprehensive development plans for the Shanghai Pengxin

farms which encompass a total of 5,689 effective hectares in locations

around the central North Island and Hawkes Bay. The joint venture

partner intends investing $15.5 million over three years to lift

production to around 5 million kg of milksolids per annum. Further

investment of $3.2 million will follow. Landcorp will assume day-to-

day management responsibility for the portfolio. Existing share milkers

will operate through the current season.

Other developments will involve enlargement of established dairying

complexes as opportunities arise. Maronan Pastures, near Ashburton,

will be scaled up in 2012/13, with the conversion of an adjacent

Landcorp property to dairying and the building of a second shed on

the complex: Maronan will milk a further 1,200 cows at the season’s

peak. In North Canterbury, much of the former Eyrewell station

will also be converted for dairy operations as part of the nearby

Waimakariri cluster.

Production increases are sought across our existing dry stock

operations which have now fully recovered from the drought yearsof 2007 and 2008. Cheltenham Downs, in the Manawatu, is proving

a valuable addition to sheep and beef finishing in the North Island:

It is part of an integrated lamb production and supply system

encompassing Landcorp properties (see pages 24–26).

Higher Productivity

Landcorp continues to lift productivity in dairying operations with

the increased use of new technologies and precision irrigation. The

gains achievable with centre pivots are now well established. On

Waimakariri, for example, annual milksolid production grew 30 per

cent in 2011/12 which was the redeveloped cluster’s first full year of

operation with four centre pivot units in place of traditional border

dyke irrigation. Precision irrigation is integral to Waimakariri and

Maronan Dairies expansion plans.




We will continue securing the benefits of the MilkHub technology,

rolled out progressively since 2007. This system is now installed

in 32 of Landcorp’s 42 dairy sheds and has recently received a

comprehensive software upgrade. MilkHub complements Landcorp’s

DPR (Dairy Production Reporting) system which holds data for every

farm and herd. DPR records and analyses pasture and milk production,

ratios of financial performance and many other critical variables. Farm

managers are making increasing use of DPR and MilkHub as tools formanagement of cows and grass (see page 19).

Landcorp’s sheep and beef farming will increasingly make use of

Livestock Production Reporting (LPR), an information tool similar

to DPR. LPR’s first version was piloted on eight properties during

2011/12, and it will be developed to encompass more types of data

and analysis. Every Landcorp farm will have its own “dashboard”

of indicators, measures and benchmarks to help managers drive

productivity higher over time.

Gains will be underpinned by ongoing genetic progress in sheep,

cattle and deer, based on the programmes of Focus Genetics. The

joint venture began in July 2011, providing Landcorp and others with

access to a much greater population of breeding animals. Future yearsare expected to show productivity gain based on accelerated rates of

genetic progress. Landcorp farm managers work to build and maintain

condition on all animals all-year-round, sometimes reducing flock

or herd size to achieve this. The benefits were reflected again during

2011/12 in reproductive rates much superior to industry averages (see

Balanced Scorecard).

Value Chain Development

Increasing collaboration with processors and among farmers, and

new technology applications are facilitating the growth of integrated

value chains from the New Zealand producer to the export market

consumers. Landcorp took another big step during 2011/12 with lamb

supply to Northern Hemisphere retailers on fixed price contracts.

Increasingly, our production system is geared to meeting specific

product quality and timing requirements in supply contracts entered

with Silver Fern Farms, the Alliance Group and other processors.

Farm IQ Systems Limited, our joint venture with Silver Fern Farms and

the Ministry for Primary Industries, has a key role in developing and

expanding integrated value chains in the red meat industry. The goal is

to create more value by aligning New Zealand production and supply

with the preferences of affluent consumers in Europe, North America

and Asia.

Landcorp is providing leadership on information technology as Farm

IQ builds a farm management system encompassing key variables

in lamb production, with data supplied by more than 300 farmers.

In 2011/12, a pilot of this system tracked 365,000 lambs. Twelve

Landcorp farms are active users of Farm IQ at this stage. This is the

third year of a seven-year programme to develop a comprehensive

“pasture-to-plate” system for red meat. This will increasingly extend

also to beef and venison.

Landcorp is fully engaged with National Animal Identification and

Tracing (NAIT), the system for strengthening traceability in New

Zealand livestock industries. NAIT tagging and data reporting became

mandatory for all cattle in July 2012, with deer the next species tobe included during 2013. We give strong recognition to the value of

traceability for assuring export markets on the quality and health of

New Zealand-sourced red meats. Landcorp continues to support the

trialling of new radio frequency identification (RFID) tags and readers

for deer and sheep.

Optimised Land Use

Landcorp is developing comprehensive plans for each farm towards

optimising land use in both economic and environmental terms. Plans

including decision making on livestock species, stocking rates, pasture

regimes, crop rotation and infrastructure development. There is also a

strong emphasis on synergies between farms, these reflected in landuse decision making across individual farms. Overall, Landcorp has a

“one farm, many paddocks” approach to managing its land portfolio in

the North and South Islands. Farm plans also strengthen the focus on

environmental management particularly through nutrient monitoring

and control, and the retirement and protection of streams, wetlands

and bush areas.

Plantation forestry is increasingly part of optimised land use, in areas

where livestock farming is uneconomic because of ground conditions

or access. During 2011/12, Landcorp planted an additional 869

hectares of forestry, on 22 farms, which will accrue carbon credits

under the New Zealand Emissions Trading Scheme (NZ ETS) in future

years. By 30 June 2012, the company had approximately 5,600

hectares in plantation forests (mainly pinus radiata and douglas fir)

including replaced forests registered in the NZ ETS. A substantial

increase in planting is expected over the long term, with a further

2,324 hectares planned for 2012/13. Farm managers recognise forestry

as a land use option also because of its wood production over 25-30

years. In the past year, Landcorp harvested 267 hectares of mature

trees.

Wind power generation is another land use option, as demonstrated

by the successful establishment of the Mahinerangi Wind Farm partly

on Thornicroft Farm, North Otago. There are wind monitoring sites

on various Landcorp properties in the North and South Islands, with

further wind farm projects likely to be evaluated in the future.

Landcorp will continue to look at optimising the size and location of

farms to make best use of land and secure economies of scale across

CHIEFEXECUTIVE'SREVIEWCONTINUED

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WORKING TOGETHER




Environmental

Landcorp is implementing Sustainable Land Management Programmeson all its properties, in addition to sustainable practices under Farm

Pride®. In 2010/11, 28 farms had formal programmes. The followingmeasures reflect a selection of sustainable practices encompassed bythese programmes.


2011/12ACTUAL

2008-2012AVERAGE

Farm withenvironment-ally soundpractices

Farms withnutrientbudgetsprepared andimplemented

100% 100% 100%

Nutrient budgeting involves close assessment of nutrientuse and flows, of fertiliser efficiency and of possible adverseenvironmental impacts. Budgeting also facilitates investigationof options for reducing adverse impacts, if any, on adjoiningland or waterways.

ContractorswithSpreadmarkaccreditationfor fertiliserapplication

100% 100% 100%

The Spreadmark Code of Practice gives assurance that fertiliseris applied to the highest standards, at an even rate anddistribution pattern. Accreditation requires independent audit.Landcorp’s policy is to use only Spreadmark contractors.

FarmPride®audit ratings –annual averageof all farms forassurance on

environmentalpractices

8 8 7

The FarmPride® programme puts emphasis on soundenvironmental practices in relation to the storage and use offarm chemicals and fertilisers. These practices involve eventsrecording, staff training and use of certified contractors.FarmPride® also includes the systematic monitoring ofeffluent management on dairy farms.

Protect areasof specialenvironmentalvalue

Additionalcovenants onprotected areasregistered in the year

12 23 25

The 23 additional covenants brought the total at 30 June2012 to 212.

Percentageof farms withfencing aroundriparian zones,wetlands andwaterways

50% 60% N/A

Landcorp has a programme to progressively fence off moreareas for protection from excess run-off and for water qualityenhancement. Careful attention is paid to protect all sensitiveriparian areas.

its operations. There were no significant farm land purchases or sales

during 2011/12, with the emphasis more on developing previously-

acquired land, most notably Cheltenham Downs (Manawatu) and the

extension to Maronan Dairies (mid Canterbury). In the current year, our

focus will be the planned Shanghai Pengxin joint venture and further

development of established dairy complexes including Wairakei Estate.

Landcorp strategy has long included the subdivision and sale of land

that has higher values in lifestyle farming or residential use. LandcorpEstates continues to be active in that market with five developments

(see pages 30, 31).

Environmental Protection

We have a fundamental commitment to environmental protection

and enhancement, integral to all Landcorp’s planning and use of land

and other resources. Farms are externally audited for compliance with

the FarmPride® best practice programme which encompasses: the use

and storage of chemicals; the quality of water, soil and atmospheric

conditions; and animal health and welfare. Dairy farms are audited

annually, and sheep, beef and deer farms are audited biennially.

During 2011/12, Landcorp continued its practice of retiring andprotecting particular areas for their environmental value. A further

371 hectares were fenced and protected by 23 newly-registered

covenants. This involved the retirement of 81 areas of bush, eight

wetlands and 31 riparian margins. Landcorp has now established with

Queen Elizabeth II Trust, the Department of Conservation, and/or

the Waiau Fisheries and Wildlife Habitat Enhancement Trust a total

of 221 covenants encompassing 5,925 hectares of land nationwide

and 19.8 km of riparian strips. The company is committed to the

environmental protection of these and further areas, alongside

sustainable farming operations and lifestyle developments (see

examples on pages 28 and 31).

Landcorp has a particularly strong focus on water quality long evident,

for example, in our support for the Dairying and Clean Streams Accord

since 2003. In 2011/12 we supported the Government-led initiative

to cleanup Lake Taupo through reduction of nitrogen runoff in the lake

catchment – currently New Zealand’s biggest environmental project.

Landcorp fully recognises the significance of Taupo-nui-a-tia to all New

Zealanders and particularly to Ngati Tuwharetoa, the iwi with mana

whenua in the Lake Taupo catchment. Under three agreements signed

with the Lake Taupo Protection Trust, the company has withdrawal

1,627 hectares from livestock farming. We no longer have any livestock

that might contribute nitrogen leaching in the catchment (see page 23).

Landcorp continues to contribute funding and in-kind support to

the work of the Pastoral Greenhouse Gas (GHG) Research Consortium.

We have an ongoing interest in GHG issues, and we are taking practicalsteps to monitor, manage and mitigate emissions. Plantation forestry

on many Landcorp farms is integral to our approach.




Employees and Safety

I thank all Landcorp people for their efforts and dedication during

2011/12. Employee performance is a major driver of company

performance, and results for the latest year are a tribute to the

knowledge, skills and hard work of our people. Landcorp continues

to improve its programmes for training and development, for

performance management and for promoting excellence among

employees (see pages 16–18). During 2011/12, staff turnover ratesincreased in some areas, mainly as a result of industry-wide factors.

It is pleasing to see stability among farm and business managers and

senior managers. Their commitment to the company and depth of

experience is a real strength of Landcorp.

Workplace safety is another of Landcorp’s strengths, maintained

through employee training and a rigorous safety approach to

farming. Technical skills and accident prevention practices are, of

course, critical but our training will increasingly also put emphasis on

personal attitudes to safe behavior. We began a shift in this direction

during 2011/12, particularly in relation to quad bike use. From the

current year onwards, “100% safety” will be promoted as a core value

among Landcorp employees with all encouraged to think more about

their safety on the job. We will shed any old ideas that injuries are,

somehow, inevitable in farming.

Outlook

Landcorp has a very positive future, based on long-term global

growth in demand for New Zealand’s high quality food and fibre

products. The shorter term outlook is clouded by the European

financial crisis, by slower growth in Asian and North American

economies, and by the high New Zealand dollar. In 2012/13 we

are seeing these factors impact on international market prices for

milk, red meat and timber. Product price reductions will likely havea significant impact on Landcorp and New Zealand agriculture

generally. Landcorp’s forecast net operating profit for 2012/13 of

$12.7 million is predicated on current price trends.

Landcorp has the people, strategy and partners to prosper over the

long term. Increasingly, we will work with others in agriculture, in

supply chains and in government to push ahead with new initiatives

that optimise New Zealand agricultural production systems and

add value to everything we do. We face the coming years mindful

of market challenges and cost pressures, and with confidence in our

capabilities and our future performance.

Chris Kelly

Chief Executive

CHIEFEXECUTIVE'SREVIEWCONTINUED

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WORKING TOGETHER



| RAFT CREEK.




PEOPLE ANDCAPABILITYDEVELOPMENTLANDCORP DEVELOPS ITS PEOPLE THROUGH TRAINING AND EDUCATION, PERFORMANCE

MANAGEMENT, AND THE CHAMPIONING OF EXCELLENCE AND SUCCESS. COURSES, POLICIES AND

PRACTICES ARE INTENDED TO STRENGTHEN LEADERSHIP WITHIN THE COMPANY AND EXPAND ITS

CAPABILITIES, AND ALSO TO BUILD A STRONG FOCUS ON SAFETY IN ALL AREAS OF OPERATION.

AT 30 JUNE 2012, Landcorp had 573

full-time permanent employees, compared

with 599 at the previous balance date. The

reduction reflected partly an increase in thenumber of roles that were vacant and being

advertised at each date: 18 in June 2012,

up from 11 in June 2011. During the latest

year, a number of roles disappeared through

restructuring moves that included closure

of the Landsys business unit and reductions

on Aratiatia Station, Taupo, after part of this

property was sold. Two Landcorp employees

were transferred to Focus Genetics.

Training

Landcorp stepped up training activity during

2011/12. The number of employees who

undertook internal courses and/or studied

for NZQA-accredited qualifications was the

highest for at least five years. There were 526

individuals enrolled in 823 NZQA-accredited

programmes during the year, including 18

people in modern apprenticeships.

The AgITO programme completion rate

was also higher than in previous years, up

almost 30 per cent compared with 2010/11.

Overall, there is increasing acceptance of

training as an integral part of Landcorp farm

employment. Managers continue to work

with team members to identify training

needs and opportunities that will benefit

both the individual and the company.

Landcorp is putting particular effort into

the continuing development of managers.

During 2011/12, a one-day training

programme for all farm managers was

aimed at improving staff recruitment

practices and daily management skills.

At senior levels, 11 Landcorp managers

attended courses run by external providers.

These included the second Agricultural

Leadership Programme in November

2011, with three of the participants being

Landcorp people and nine others from a

range of other organisations. Landcorp runseach programme in association with the

New Zealand Institute of Management

(NZIM), with the aim of developing future

leaders in agriculture who have world-

class knowledge and experience. A third

programme is planned for November 2012.

Landcorp managers and other employees

are encouraged to enter for relevant

industry awards and 2011/12 once again

brought a number of prominent successes

in this regard (see pages 32–33).

On-job Performance

All Landcorp employees are set performance

objectives by their managers, and these

help to drive overall performance by teams

and by the company. During 2011/12,

greater attention was paid to determining

objectives that also contribute to individual

development.

Health and Safety

This period saw 100 employees undertake

the Farm Safe theory course as Landcorp

continued to place high importance on

health and safety on-farm and elsewhere.

The company was accepted into the ACC

Partnership Programme which gives us

greater influence on the management

of rehabilitation from work injuries. As

a result, Landcorp people have better

rehabilitation advice and an earlier return

to work, and farm managers have access

to professional intermediaries to deal with

health practitioners. We continue to improve

policies, processes and practices for safety,

this helping with our acceptance into the

ACC programme at secondary level.

In the latest year, the numbers of reported

incidents (231) and injury accidents

(162) were in line with the previous year.

16

OPERATIONAL REVIEW



Notably, injuries in the final quarter of

2011/12 were at the same level as in

the corresponding period of the previous

year even though accreditation to thePartnership Programme is generally

accompanied by increased reporting. In

the 2012/13 year, Landcorp will further

improve its approach to injury prevention

with a focus on the decision making of

managers and staff.

In June 2012, a Coroner’s hearing was

held into the accidental death of dairy

farm assistant Renee McNelis on the

Cape Foulwind complex in November

2010. Although the Department of Labour

report indicated that Landcorp’s trainingrequirements and other actions met

expected standards, we continue to work

on reduction of incidents arising from quad

bike use. Landcorp has rigorously reviewed

its guidelines and training processes. In

2011 the number of reported injuries

from accidents involving quads was less

than half that in 2010 and in 2009. During

September 2012, Landcorp will conduct

further studies on the suitability of quads

for farm work, especially for towing

feeders, spreaders and other implements.

LANDCORP’S FUTURE FARMERCOURSE has 14 students in 2012,

all keen to learn basic knowledge

and skills for a career in farming. The

year-long course combines tuition

and written work in a classroom

on Aratiatia Station, with practical

on-farm experience on Aratiatia and

other Landcorp properties. Subjects

range from livestock and pasture

management, to agrichemicals use and

on-farm safety. Pictured at Aratiatia

are 2012 students (left to right):

Deborah Simon, Henry Eames, Kaitlin

Elliot and Cameron Managh.





Employees


2011/12ACTUAL

2008-2012AVERAGE

Maintain safe andhealthy workplaces

External Accreditation ofLandcorp’s Work Safe programme

TertiaryAccreditation

SecondaryAccreditation

N/A

On April 1 2012, Landcorp joined the ACC Partnership Programme. This involves ahigher audit standard than the previous Workplace Safety Management Practices(WSMP). The first Partnership Programme audit gave Landcorp a SecondaryAccreditation. Landcorp aims to meet the Tertiary standard, reflecting the higheststandard of health and safety practices.

Internal audit of Landcorp’s WorkSafe programme – annual averagecompliance rating of all farms

9.0 9.0 8.0

Each Landcorp workplace is subject to a biennial internal audit under the Work SafeProgramme involving external auditors.

Percentage of total workdays lostdue to workplace accidents

0.35% 0.38% 0.34%

Landcorp staff are reducing the incidence of workplace injuries, with the associated

lost-time measure for 2011/12 down from the previous year although still slightlyabove target. The ACC Partnership Programme, with Wellnz as the third party provider,is expected to reduce lost workdays further through earlier rehabilitation intervention.

Maintainappropriate staffingthrough recruitment

Employee turnover rate <23% 30.5% 28.3%

The turnover rate for 2011/12 remains above target, and is above the 5 year average. Asignificant proportion of the turnover comes through a high turnover in dairy staff.

Number of training days peremployee, per year

4.0 3.6 3.9

Landcorp continues to place emphasis on training and development of staff. During2011/12 emphasis was placed on up-skilling managers in management functions.These numbers do not include the time staff spent studying for AgITO courses such asModern Apprenticeships or National Certificates delivered outside work hours.

Train and developstaff to supportcurrent and futurebusiness needs

Number of employees whocompleted Landcorp-internalcourses

350 508 398

Landcorp continues to train at all levels to meet capability requirements and to ensuresuccession planning and internal promotion.

NZQA accredited unit standardsachieved for year

2500 2802 2706

Farm employees continue to enrol in AgITO qualifications - the majority of staffare committed to developing their competencies to improve farm productivity andenhance their career opportunities. The basic component of learning is measured asa Unit Standard and in 2011/12 the number of completed Unit Standards is greaterthan has been seen over the last three years and well over the 5 year average.Trainee numbers are up, completed programmes are up and number of abandonedprogrammes is down.

Training investment as a percentageof gross revenue

0.6% 0.4% 0.5%

Landcorp continues to make significant training investment aimed at increasing

production through higher levels of capability among employees. Actual investment in2011/12 was unchanged but higher-than-expected revenue for the year lowered thepercentage below target.

People Capability, Job Satisfaction – – N/A

Landcorp's people capability measure is being aligned with the annual reporting cycleand talent management process. The next available scores will be for 2012/13. Thecompany is also moving to a new form of employee job climate and satisfactionmeasure that will enable comparison of Landcorp with the wider employment marketand other agricultural organisations. For this, a new survey was trialled with a sampleof staff during 2011/12. Results indicated that Landcorp measures above the NewZealand average in key areas including certainty around organisational purpose,organisational communication and development opportunities.

Turnover

Landcorp’s employee turnover rate for

2011/12 was 30.5 per cent, higher than the

previous year (25.4 per cent). There are many

reasons. A reduced turnover rate among

farm managers (16 per cent) creates fewer

opportunities for internal advancement by

senior dairy managers and senior shepherds:

In 2011/12, we saw well-trained and

experienced people in these roles looking

for opportunities elsewhere after two years

of relatively low turnover in the company atthis level.

Dairy farms had the highest turnover rate.

This can be attributed to New Zealand-

wide growth in the dairy industry which is

expanding the range of opportunities for

experienced people. There is also a trend for

new entrants, attracted by opportunities

inherent in the industry’s growth, to leave

in their first year because they are not

actually suited to dairying. Landcorp has

seen a doubling in the number of dairy farm

workers who leave during their first year of

employment with the company.

Turnover among business managers remains

low, with only two people leaving such a

role during 2011/12. This settled operational

management group is a great strength of

Landcorp, reflecting the importance placed

on people development and mentoring at

this level.

A senior farm manager with 40 years’ service

will leave early in 2012/13. Barry Hobbs,

who was most recently Thornicroft Station

Farm Manager in Otago, leaves the company

for semi-retirement. Barry will continue to

assist Landcorp in advisory and locum farm

manager roles.

18

OPERATIONAL REVIEW



WORKING with skilled farmers

TEAMWORK TO ANSWERTHE HARD QUESTIONS

KEEPING THE COWS AT OPTIMAL FEED LEVELS IS THE MAJOR GOAL ON MOUTOA DAIRIES– AND THE NINE FARM MANAGERS IN THIS HOROWHENUA CLUSTER WORK AT THAT

TOGETHER EVERY DAY.

UNDER THE LEADERSHIP of Farm Business

Manager Brian Wilkinson, they have

made Dairy Production Reporting (DPR)

a valuable tool in the daily management

of cows, pasture and milk flow: It is all the

more valuable because of its capacity for

benchmarking performance across the nine

adjacent farms. The online DPR includes

stocking rates, feed consumption, milk flow

statistics, production cost ratios, projected

profit figures and other critical variables.

“If we focus on the quantity and quality

of grass being fed to the cows, then milk

production will take care of itself. That’s our

basic rule of thumb,” says Brian Wilkinson.

“We know cows need 18-20kg of dry matter

a day and our aim is to ensure they get that,

plus a little more for increased production

during the first half of the season. By

monitoring every day we know exactly what

the cows are getting.”

The approach has paid off again in 2011/12

with average production across the farms

increasing to 1,385kg of milksolids per

hectare (or 410kg per cow). With ongoing

improvement in herd and feed management,

the Moutoa team is aiming for 1,600kg per

hectare as an average across all farms.

It is an ambitious target even on these

fertile, silty soils alongside the Manawatu

River. Grass growth can be very erratic,

especially at the season’s height in springwhen dry matter production varies

significantly from day-to-day under the

influence of rainfall, sunshine hours and

temperature. The Moutoa farm managers

make careful use of supplements to avoid

any hungry days and to lift per-cow intake

above 18kg in the late spring. Production

performance in 2011/12 reflected better-

than-normal grass growth thanks to a

consistently wet and warm spring and

summer.

Landcorp put in its own farm managers from

the start of 2008/09, replacing sharemilkers

on Moutoa’s 1,400 effective hectares of milk

production platform. The farms have further

developed since then, with roads, dairy

sheds and other buildings upgraded. Pasture

improvement and management has enabled

stocking rates of up to 3.5 cows per hectare

in the latest season.

Brian Wilkinson is a strong believer in

teamwork among the nine farm managers

and their employees. Each manager isclearly responsible for performance on their

farm and the best-performing farm sets the

benchmark for others. Information sharing

through the DPR and at team meetings is an

integral part of Moutoa’s development plan.

“With DPR and related software, we keep

asking ourselves the hard questions like

whether a particular way of managing the

production system is as profitable as it

should be,” says Brian. “We are confident

that Moutoa can rival, even surpass,

performance on the best of dairy farms

anywhere in New Zealand.”

| FARM BUSINESS MANAGER Brian Wilkinson and Matt Johnson, Moutoa Dairies.




WORKING with private investors

FROM FOREST TO HIGHPERFORMANCE DAIRYINGLANDCORP IS DEVELOPING NORTH ISLAND PUMICE COUNTRY INTO HIGHLY-PRODUCTIVE DAIRY

FARMS – A BOLD VENTURE THAT LINKS OUR EXPERTISE AND SYSTEMS WITH THE ASPIRATIONS OF

PRIVATE INVESTORS.

WAIRAKEI ESTATE has six dairy units

and support grazing land today as part

of the region’s biggest conversion from

forestry to dairying. Investment company

Wairakei Pastoral Limited is the owner– and Landcorp is the farmer, holding a

long-term lease on each of the newly-

created farms. The 7,500 hectares now in

pasture include an extensive sheep and

beef operation.

Wairakei Pastoral Chief Executive Chris

Parkinson says his private investors

sought a long-term partner with

strengths in developing and operating

farms, and also in environmental and

social management. “With a project of

this scale, we needed the right partner

and one who would also do right by the

land,” he says.

“We have an excellent working relationship

with Landcorp at all levels. Together we have

weathered severe storms in the operating

environment. We’re very confident about the

future, including more dairying developmentof land that is progressively being converted

from forestry.”

Landcorp became involved in 2004 before

conversion started. Alan Bullick, one of

Landcorp’s Farm Business Managers for

Wairakei Estate, says each farm was

meticulously planned in advance of

development work. “When the pine trees were

still on and we couldn’t see much, we used

contour maps to plan where dairies, roads,

fence lines and everything elsewhere would

go,” he says. “With the farms developed so far,

we have gone back over their plans but have,

in fact, needed to change very little.”

Conversion from forestry stopped in

December 2007 under conditions imposed

by New Zealand’s Emissions Trading Scheme

(ETS). Wairakei Pastoral Limited is addressing

ETS liabilities associated with furtherclearance for pasture and development work

resumed in 2011/12.

Landcorp has seen steady gains in

productivity over the past six years since

dairying operations began on its first Wairakei

Estate unit, Renown. Pasture has improved

each season with the buildup of soil

composition and applications of cobalt – an

element naturally deficit in pumice country.

(This deficiency swayed land use to forestry

before research, in recent decades, showed

how cobalt spreading by farmers could make

this good country for livestock).

20

OPERATIONAL REVIEW



FARM MANAGER

IAN NELSON AND WIFE

JUDY NELSON constantly

think about nitrite leaching

risks as they work the

Resolution dairy unit. Ian

does no effluent spreading

within 100m of the Waikato

River bank, and fences and silt

traps are carefully maintainedaround the property’s streams

and wetlands. Resolution was

developed with a large and

well-located effluent pond

(below).

Generally, Landcorp sows grass nine-to-12

months after trees and stumps have been

removed from an area. Dairies, housing and

other infrastructure are sited to maximize

natural advantages on each farm.

Rainfall on Wairakei Estate is relatively low:

Weather stations have measured an average

980 millimeters per annum over the past

five years. Ideally the dairy units wouldbe irrigated with water either drawn from

the Waikato River or deep bores. Wairakei

Estate has been the subject of water consent

processes for several years, and resolution is

expected during 2012/13.

Meantime Landcorp has gone to dry land

farming with reduced stocking rates,

increased reliance on feed crops and a switch

from ryegrass to fescue pasture. The latter

is hardier in a dry climate and its relatively

high dry matter content is good for cow

health. Alan Bullick says fescue does, however,

require closer management and accurate

grazing. “Our approach to establishing

pasture and enhancing feed quality is to

slow down, and make sure we do everything

properly.”

This is definitely paying off with per-hectare

production rising to 950 kg of milksolids in

2011/12 (per-cow average of 405 kg). With

sufficient irrigation, Alan Bullick believes

Wairakei Estate dairy units could produce up

to 1500 kg of milksolids per hectare. “This

area could be the next southern Waikato, due

mainly to its free draining soils and relatively

short winter, and also to the buildup we’re

seeing in soil organic matter.”

The six existing dairy units cover 3,200

hectares, with a further 1,300 hectares of

dairy support land. Further conversion from

forestry in the years ahead will see Landcorp

applying its expertise and systems on a

steadily increasing scale.




THE WAIKATO RIVERFLOWS BY ITBEST PRACTICE FARMING has a major

role in helping protect and restore the

health and well-being of the Waikato River.

Landcorp and Wairakei Pastoral have this

firmly in mind as they develop and farm the

estate, along eight kilometres of river bank.

The dairy units were laid out with wide

riparian strips between the river and

adjacent paddocks. Native vegetation is

gradually overtaking these buffers, and also

fenced wetlands and streams that drain

into the Waikato. Effluent spreading ismuch reduced on pasture that is closest to

the river.

The Waikato Regional Council gives positive

acknowledgement to Landcorp and Wairakei

Pastoral for their commitment to farming

best practice which will limit adverse

impacts on water quality.

In general, the Council says, the river has

been impacted by agriculture over many

decades, and conversion of land along

its banks from forestry to pasture will

inevitably put pressure water quality.

However the existing dairy units are

credited with operating to environmentalbest practice as this is currently recognised

in the dairy industry.

Indeed, Resolution Farm Manager Ian

Nelson has won the Waikato Regional

Council Water Protection Award for 2012

(see page 32).

Crown settlements with five Waikato iwi,

and implementing legislation enacted

in 2010, will lead to new initiatives

for protecting and restoring the river’s

health and well-being. Planning for this is

underway by the Waikato River Authority

and the Waikato Regional Council. Landcorp

and Wairakei Pastoral are well placedto meet the new water management

challenges that will arise from this process.

| PLANNING for the dairying development of Wairakei Estate included the establishment of a riparian strip

along the Waikato River. Fences are set back 50m, with native vegetation re-appearing along the river bank.

Alan Bullick, one of Landcorp’s Farm Business Managers for Wairakei Estate, says the riparian strip is a big step

beyond past practices of running pine plantation or pasture virtually to the water’s edge.

22

OPERATIONAL REVIEW



LANDCORP HAS AGREEMENTS with the

Lake Taupo Protection Trust for withdrawal

of 1,627 hectares in the catchment. Most of

this will become pine plantation, with further

environmental benefit under New Zealand’s

programme for carbon emissions reduction.

The land is held by Landcorp in three blocks –

part of Wairakei Station (488 hectares), Tauhara

South (1,060 hectares) and Wharewaka East

(79 hectares). They are remnants of the old

Crown Estate that once surrounded Taupo

town, and was cleared of scrub and wilding

pines for pasture in the 1960s.

“Like others, Landcorp recognises that past

and current farming in the Taupo catchment

is putting pressure on water quality,” says

Forestry Manager Gordon Williams. “Retiring

the three blocks in agreement with the Trust

is an excellent opportunity for us to help

address the situation and put the land into

other productive use.”

Landcorp has previously acknowledged

nitrogen leaching concerns with stocking

rates on Wairakei, Tauhara South and

Wharewaka East that were generally lower

than average for the region. This fact was

reflected in the agreements signed with the

Trust in June-July 2012.

The Trust – a joint venture between the

Government, Taupo District Council, Waikato

Regional Council and Ngati Tuwharetoa – will,

in effect, pay Landcorp for keeping livestock

off the land. The annual nitrogen leachate

avoided has been calculated for each of

the three blocks at between 6.6 and 8.8

kilograms per hectare based on past practice.

Landcorp will begin extensive forestry

planting in 2012/13, with an accrual of

carbon credits to follow in future years.

Trust Chief Executive Graeme Fleming says

Landcorp has been very constructive on the

complex issues. “The company is good to deal

with because of its ability and willingness

to integrate nitrogen reduction and land use

strategies across the Taupo catchment,” he says.

By 30 June 2012, the Trust had entered

nitrogen reduction agreements with over

20 land owners, many of whom will convert

pasture to forest. Some farmers have agreed

to “nitrogen management plans” involving

change in the livestock type on their land

and/or stocking reductions. “While our

agreements are bringing down nitrogen, it has

become clear that the associated changes in

land use can make farms more efficient and

profitable as input costs decline and, where

new forest is being planted, there are carbon

credits to be earned,” says Graeme Fleming.

The Trust, set up in 2007, seeks to reduce

nitrogen leaching into the lake by 20 per

cent by 2018. On current estimates, that

will require avoidance of 183 tonnes ofnitrogen annually. The Trust’s work and

agreements with land owners are funded by

the Government and the two councils (total

funding of $81.5 million between 2007 and

2018). To date a total of 131 tonnes have

been contracted for removal.

The Landcorp agreement represents

approximately 11.54 tonnes of nitrogen and

the company now has no pastoral farming

activities in the Taupo catchment. Until

recently, the Wairakei and Tauhara South

blocks were grazed by sheep, cattle and deer.

The remainder of Wairakei Station, outside

the catchment, will still be farmed.

LAND MANAGEMENTTO PROTECT LAKE TAUPO

LANDCORP IS SUPPORTING THE GOVERNMENT-LED PROTECTION OF

LAKE TAUPO THROUGH THE WITHDRAWAL OF SUBSTANTIAL AREAS

FROM PASTORAL FARMING. REDUCTION IN NITROGEN LEACHING IN

THIS WAY WILL HAVE LONG-TERM BENEFITS FOR LAKE WATER QUALITY,

FOR LOCAL COMMUNITIES AND FOR THE COMPANY.

| TRUST CHIEF EXECUTIVE

Graeme Fleming and

Landcorp's Forestry Manager

Gordon Williams.

WORKING with government bodies




LAMB PRODUCTIONFOR THE VALUE CHAINEXPORT LAMB MARKETS ARE DEMANDING ON QUALITY, VOLUME AND TIMING OF SUPPLY.

LANDCORP SEEKS HIGHER VALUE BY CONTINUING TO STRENGTHEN BOTH ITS PRODUCTION

SYSTEM AND NEW ZEALAND’S LAMB SUPPLY CHAIN TO THE MOST DEMANDING OF MARKETS.

CHELTENHAM DOWNS is the latest

addition to the system – 1,290 hectares of

flat and rolling country in the Manawatu,

central in location to other Landcorp farms

and to meat processors. Cheltenham Downs

is a specialist finishing farm with great

potential for highly cost-efficient supply of

lambs to market specification through 12

months of the year.

Landcorp purchased the farm in mid-2011

for exactly this purpose, attracted by its

location, heavy soils and favourable climate.

The region’s consistency of rainfall and

sunshine hours, averaging around 1,000 ml

and 1,700 hours per annum respectively,

make for good year-round growth in pasture

and feed crops. Farm Manager Ian Brown

is confident Cheltenham Downs can finish

at least 30,000 lambs annually once its

current intensive development programme

is completed. The property finished as

many as 20,000 lambs during its first year

with Landcorp, before new fencing was

completed to enable the pasture and stock

management that will become fundamental

from now on.

Cheltenham Downs is being converted from

large-scale arable cropping. Landcorp has

been installing 98km of new fences, and a

network of wide stock lanes and roads. New

shelter belts are being planted, and new

houses and covered yards built. Gullies and

waterways are being fenced and planted in

native species.

The farm has three blocks, including 547

hectares of free-draining terrace near

Colyton on the eastern side of the Oroua

River. The second is higher terraced land to

the north of this home block, and the third

is gently sloping country to the northwest,

on Short Road near Feilding. Each block

also offers excellent land for finishing beef

WORKING with customers

| FARM MANAGER Ian Brown inspects Lambs grazing on plantain pasture.

24

OPERATIONAL REVIEW



cattle and rearing pre-production dairy cows,

as secondary activities in support of lamb

finishing.

In fact, Ian Brown says Cheltenham Downs

adds depth and diversity to all Landcorp

operations in the North Island. “We’re a

major outlet for the breeding farms …

whatever they produce, we can finish,” hesays. His major challenge is achieving target

weight gain on lambs bred elsewhere by

Landcorp – and also animals bought on

the store market – as quickly as possible

or by the dates required to help fill supply

contracts with processing companies.

Generally the goal is to produce lambs

of 40kg live weight or heavier, with some

flexibility around this given Cheltenham

Downs’ significant potential to become a

“safety valve” when dry conditions hit feed

availability in other regions. This property can

then be called on to accommodate larger

numbers of animals.

Cheltenham Downs relies on pasture grasses

and forage crops, with a focus on those

which prove most efficient for short rotation

finishing. Plantain, a perennial forage herbsimilar to chicory but with a more robust

growth pattern, was trialed on Cheltenham

Downs during 2011/12. Ian Brown says early

indications of lamb weight gain are very

promising. ”With electronic ear tagging of

lambs from now on, we can collect more hard

data and learn far more about plantain as a

feed at different stages of finishing,” he says.

Indeed, Cheltenham Downs has given

early indications that it will perform

exceptionally well as a finishing farm into

the future – and become a very valuable

component of Landcorp’s nationwide farm

system for lamb breeding and finishing.

Continuous productivity gain is critical in

the company’s “value chain” approach to

production and supply for export markets.

Livestock Marketing Manager AndrewHall says Cheltenham Downs will help

lift Landcorp to the next level with this

approach by growing the volume of lambs

available for supply under fixed-price

contracts, and by expanding knowledge

on how lambs can be finished to market

specification at lower cost and on time.

| NEW YARDS on the Colyton block.

| LAMBS at final weighing. | WAGYU ANGUS heifers. | DAIRY calves.




SUPPLY FOR

TESCO’S FINEST*

LANDCORP-PRODUCED LAMB fills an

important niche in the Finest* food

programme of United Kingdom grocery

group Tesco – it’s a “value chain” in action

between New Zealand farmers and

export market retailers.

Silver Fern Farms supplies to Tesco, and

both look to Landcorp for lambs of the

consistently high quality demanded at the

premium end of the UK consumer market

between December and March. Tesco wants

New Zealand product as its Finest* lamb at

the height of our supply season (and outsidethe seasons of regional lamb producers in

the UK). Silver Fern Farms introduced Tesco

to Landcorp in 2009 and the three-way

relationship has grown ever since. Tesco’s

rigorous quality assessment process includes

regular lamb taste tests and Landcorp farm

visits.

For Landcorp, the “value chain” means

forward commitment to supply the types

and volumes of lambs required in certain

weeks under fixed price contracts. This

enables production to be linked far more

closely to market signals and gives far more

certainty to farmgate returns through the

year. The contracts replace traditional supply

in response to the weekly price schedules

posted by meat processing companies.

Silver Fern Farms Chief Executive Keith

Cooper says Landcorp has the vision and

capability to make the value chain approach

a success. “Silver Fern Farms is absolutely

committed to growing programmes that link

red meat production to the final consumer

market, and this means working in partnership

with farmers and retailers. Landcorp is in

Tesco’s Finest* lamb programme because it

will consistently supply lambs of the rightage, grade and weight, in the right weeks. This

approach, focused on quality, consistency and

fixed forward pricing, is the best way forward

for us.”

Landcorp took another big step during

2011/12 with fixed price contracts covering

70 per cent of all lambs the company sold for

processing and export in the year (330,000).

Tesco’s Finest* programme represented a

substantial component of this: Landcorp

also had contracts for standard, year-round

supply to Tesco, and for supply to other

retailers through Silver Fern Farms and

other processors.

Livestock Marketing Manager Andrew Hall

says prices received under the contracts

through 2011/12 were, on average, higher

than those offered on traditional schedules.

“We are on track to having 80% of all

Landcorp’s red meat sales covered by fixed

price contracts as we develop both relevant

supply chain relationships and our multi-farm

production system,” says Andrew.

As well as greater surety of income, fixed

price contracts provide a valuable tool for

more informed decision making as Landcorp

farm and business managers weigh upstocking options, use of available feed and all

other variables that go into optimising per

farm return. Landcorp is also working with

private farmers to grow the numbers of lambs

available for finishing at Cheltenham Downs

and elsewhere: Landcorp-bred rams are being

used to source from outside the company

more of the lambs suitable for supply under

fixed price contracts, at the right times. It all

adds up to steady expansion of the “value

chain” approach.

26

OPERATIONAL REVIEW



CLIMATE AND TERRAIN POSE SPECIAL CHALLENGES ON RANGEDALE STATION, IN THE WAIRARAPA’S

NORTH-EASTERN HILL COUNTRY. “WE KNOW HOW TO FARM TO THE ENVIRONMENT UP HERE

AND THAT MEANS, FOR EXAMPLE, TAKING GREAT CARE TO MATCH THE RIGHT STOCK WITH OUR

PARTICULAR TYPES OF LAND,” SAYS PAUL EDWARDS, RANGEDALE FARM MANAGER FOR THE PAST

EIGHT YEARS.

PAUL AND HIS TEAM must work with

steep to rolling terrain, a mix of limestone

and papa soils, high rainfall, regular winter

snowfalls, year-round low temperatures

and frequent severe winds. The property,

on the Puketoi Range east of Pahiatua, is

between 300m and 750m above sea level,

and its annual average temperature is only

7 degrees.

Nonetheless, Rangedale is a very successful

sheep and beef farm, and an integralcomponent of Landcorp operations

across the lower North Island. In 2012, its

6,100 Romney ewes are providing lambs

for finishing at Wairio Station (south

Wairarapa), Cheltenham Downs (Manawatu),

Ahuriri Station (Hawkes Bay) and Edenham

Station (Hawkes Bay). It will also winter

800 yearling and R2 Angus steers sourced

from the Hawkes Bay. With 1,382 effective

hectares, Rangedale is a relatively low input-

cost farm that prospers on its grass growing

capacity, and on the astute management of

both livestock and pasture within the tough

parameters set by nature.

Paul Edwards says heavier cattle are always

kept on the easier limestone country in

winter to limit the risks of erosion and

pasture damage. “We don’t pull the hillsides

down into waterways,” he says. “We’re

a grass farm … no crops, hay or silage in

winter. In fact we couldn’t feed out hay even

if we wanted because it would blow away.”

Lambing is delayed until early October

because cold temperatures generally mean

a late start to spring grass growth. Snow inOctober is not uncommon and Rangedale’s

FARMING SUCCESSIN THE COLD AND WET

WORKING with the environment




lambing rate varies greatly from year-to-year.

(Ewe pregnancy scanning in 2012 showed a

very promising rate of 176 per cent.)

The climate and ground conditions have

given Rangedale one major advantage: It

never goes dry. Annual rainfall is, on average,

over 2000mls and the property’s hillsides

are blessed with many natural springs. Water

from these is reticulated under pressure to

stock troughs that support 300 hectares of

grazing land.“We are definitely summer safe and that

means we can be a holding farm for other

Landcorp properties,” says Paul. Indeed,

reliability of climate and water supply were

major considerations when the company

purchased Rangedale in 2002. Previous

owners had created the station through

amalgamation of four adjacent farms.

For Paul, wife Donna and Rangedale’s head

shepherd, Scott Lasenby, working with the

environment also means protecting water

quality and the property’s remaining stands

of native bush. To date, 50 hectares of bush

and wetland has been fenced and covered

by Queen Elizabeth II Trust covenants. Four

areas have been protected in this way and

work is underway on protecting another five

areas totaling up to 70 hectares. Streams

and drains are gradually being fenced to

exclude stock and enable regeneration ofnative species.

Tree planting is major activity on Rangedale.

Thousands of natives have gone onto

hillsides overlooking the property’s

100-year-old homestead and the covered

stock yards nearby: The home block has also

been enhanced with the planting of fine

specimen trees.

Paul Edwards sees pine plantation as another

use, both economic and environmental, for

some of Rangedale’s hillsides. To date 100

hectares have gone into forestry in two

blocks. Pines help stabilize hills that are

unsuitable for livestock, and they earn carbon

credits for Landcorp under the Emissions

Trading Scheme. In time, they will also

produce timber.

Progress being made in the farming

of Rangedale within its environmentalchallenges has been recognised through the

Ballance Farm Environment Awards for 2012

(see page 33.).

| MATURE NATIVE TREES dominate a protected

block on the hillside behind Rangedale’s historic

homestead. The two-storied house, built of rimu

timber in 1900, enhances the special character of

the property.

| RANGEDALE provides goodcountry for growing Angus

weaner steers, to be finished

either on this property or other

Landcorp farms.

28

OPERATIONAL REVIEW



RANGEDALE IS DEFINITELY PART OF

A CLOSE FARMING COMMUNITY

— evident every day the Makuri School

van winds its way around 60km on the

back roads of this district. Landcorp has

taken a lead in funding the 11-seater van

since the Ministry of Education withdrew

the previous school bus service in 2011.

And members of the Rangedale team are

frequently behind the wheel. Paul and

Donna Edwards, and Scott and Renee

Lasenby, take turns on the driving roster.

The van picks up and returns home seven

Makuri School students, each school

morning and afternoon (a round trip

of around 60km). “Having the school

at Makuri enables families to live and

work out here … it’s what helps make us

a strong community,” says Donna. This

year, two of the seven students are Cody,

aged 5, and Caleb, 9, Lasenby, the sons of

Scott and Renee (pictured with Scott on

the afternoon drop off at Rangedale).




LAND SUPPLY

FOR RURAL LIFESTYLES

NORTH OF THE WAIMAKARIRI RIVER

in the Eyrewell district, Kanuka Grove

Country Estates is within easy commuting

distance of the city and of nearby Rangiora.

Subsidiary company Landcorp Estates is

bringing onto the market 47 blocks, each

with sealed road access, reticulated water

and electricity supply, and underground

broadband connection. The development

includes preservation of three groves of

old Kanuka trees, protected by a Queen

Elizabeth II Trust covenant. Kanuka was once

the dominant cover in this area. Of course,

the Southern Alps form a magnificent

backdrop to the development.

Kanuka Grove Country Estates is the latest

Landcorp initiative for land conversion intoresidential sections or lifestyle blocks where

these uses have higher value than pastoral

farming or forestry. Activity under this

long-established strategy was stepped up

during 2011/12 as the overall New Zealand

property market recovers from three years’

of downturn.

The first blocks on Kanuka Grove Country

Estates sold quickly when placed on the

market in July and August 2012. Real

estate agency Harcourts confirms a high

level of interest among Canterbury people

attracted to the option of “starting again”

in this peaceful rural setting. The 47 blocks,

averaging four hectares in size, will be

marketed in stages as 1.5km of sealed road

is completed and other services are added

progressively.

The development has taken part of

Landcorp’s Eyrewell Station. The remaining

435 hectares of pasture will continue being

used for lamb finishing and dairy support.

Further south, Landcorp Estates is

offering New Zealanders unique

lifestyle opportunities on the shores of

Lake Manapouri. The Moturau Heights

development, previously part of Kepler

Farm, went onto the market in April

2012 and seven sections were sold in the

following four months. Real estate agent

PGG Wrightson says Moturau Heights is

unrivalled in the Manapouri/Te Anau area

and has, therefore, been keenly awaited by

Southlanders.

LANDCORP IS EXPANDING NEW ZEALAND’S SUPPLY OF NEW LIFESTYLE BLOCKS FOR PEOPLE

WHO WANT COUNTRY LIVING, PERHAPS WITH A HOBBY FARM OR ORCHARD. ON THE

NORTH CANTERBURY PLAINS, THE KANUKA GROVE COUNTRY ESTATES DEVELOPMENT IS A

WELCOME ADDITION TO THE NEW HOUSE BUILDING OPTIONS OF PEOPLE IMPACTED BY THE

CHRISTCHURCH EARTHQUAKES.

| ROAD BUILDING on Kanuka Grove Country Estates, May 2012.

WORKING with lifestylers

30

OPERATIONAL REVIEW



The development has a total of 16

sections, ranging in size from 1.35 to 3.4

hectares. Landcorp has put environmental

considerations very much to the fore. Within

the development’s boundaries, a pond and

surrounding land covering 1.5 hectares has

been fenced and protected (see right). The

Moturau Heights sections are all connected

to the local Manapouri sewerage scheme.

The company has been busy in the North

Island as well, with a resumption of section

sales on the Wharewaka development near

Taupo township. Most of the 212 sections in

the two stages developed during 2005 and

2006 have now been sold. At Lakeside, an

earlier development near Taupo, 44 of the

total 66 sections have now been sold.

The Wakelins Riverfront Estate, near Pahia,

began selling again during 2011/12. This

development has 28 sections, ranging from

1.5 – 28 hectares. To date four sections have

been sold. Buying interest has come mainly

from Northland residents seeking a rural

lifestyle while remaining central to the Bay

of Islands.

MOTURAU HEIGHTS –

MANAPOURI

Environmental protection can also

be an integral part of lifestyle block

development. At Moturau Heights,

Manapouri, Landcorp has enabled

native vegetation and wildlife

to continue flourishing around apond within the boundaries of this

development. The area was fenced

off and covenanted with the Wairau

Fisheries and Wildlife Habitat

Enhancement Trust in 2005. There has

been strong regeneration of native

species ever since – and Landcorp

encompassed the pond, and a public

walkway to the Manapouri Lake

edge, in its development planning

for Moturau Heights. Trust Field

Officer Mark Sutton says the pond’s

health and regeneration makes it

an “extremely good example ofsuccessful environmental protection”.

Mark says it reflects a commitment to

conservation that exists throughout

Landcorp, from senior decision makers

to farm managers and staff.

| NATIONAL MANAGER Phil Mckenzie (left) and Farm Manager Lindsay Cunningham.

| MOTURAU HEIGHTS from the air, with Lake Manapouri shore to the right.




AMONG THE BEST IN FARMINGLANDCORP’S MATT JOHNSON AND IAN NELSON ARE TWO OF NEW ZEALAND’S BEST DAIRY

FARMERS AS CONFIRMED IN THE 2012 DAIRY INDUSTRY AWARDS (DIAS).

MATT JOHNSON, one of Moutoa Dairies’ nine farm managers

(see page 19), is Dairy Farm Manager of the Year in the Manawatu/

Horowhenua/Rangitikei region.

The DIAs recognise excellence in all areas of farm management, in

human resource management, in financial planning and management,

and in communication.

On Moutoa, Matt Johnson has turned the 68-hectare Tutoko Unit

around over the past three years. He has overseen extensive regrassing,

an upgrade of the water reticulation system and an enlargement of the

herringbone shed.

Matt, with partner Kate, joined Moutoa in 2008, initially as an assistant

farm manager. After his success with Tutoko, Matt has moved up to

managing Tongariro, one of the complex’s biggest units with a 650-cow

herd.

He will continue managing this with all the focus required in the Moutoa

approach to feeding cows. “We allocate exactly what’s needed each day, just as careful not to over feed as to under feed,” says Matt. His regional

DIAs performance this year included the Bell-Booth Grass Roots and the

Westpac Financial Planning & Management Merit Awards.

IAN NELSON, who manages the Resolution Unit on Wairakei Estate

(see pages 20–22), is Dairy Farm Manager of the Year for the Central

Plateau region. Ian has a keen eye for detail. His contributions since

arriving on Resolution in 2007 have included refinement, in concert with

others in Landcorp, of the company-standard key indicators in the DairyProduction Reporting (DPR) maintained for every dairy unit.

Ian and wife Judy have steered the growth of Resolution’s productivity

since the first cows were moved on after conversion from forestry in

2006. Pasture on the 410 hectare farm must be carefully managed to

support the buildup of soil and fertility, and to avoid nutrient runoff into

the adjacent Waikato River. At the peak in 2011/12, the Nelsons and

their three staff milked 950 cows.

“Resolution has particular complexities and in time, it might be

combined with other areas from forestry conversion into three separate

farms,” says Ian Nelson. “We’re enjoying the challenge of making best

use of the land we have today and farming it with least impact on

natural water quality.”

The Nelsons came to Landcorp after five years’ sharemilking in the South

Waikato. In this year’s DIAs, Ian also picked up the DairyNZ Human

Resource Management and the RD1 Farm Management Merit Awards.

OTHER AWARDS

Other Landcorp people recognised for excellence through this year’s DIAs include Tara Fisher (on the Pouarua B Dairy Unit), second runner up

for Dairy Farm Manager of the Year in the Auckland-Hauraki region and winner of that region’s RD1 Farm Management Merit Award. Justin Todd

(Ruapehu Dairy Unit) was third placed in the Dairy Farm Manager of the Year for Manawatu/Horowhenua/Rangitikei region and also winner of the

Hobson & Associates Pride and Property Merit Award.

In the West Coast-Top of the South, Rochelle Roberts (Blairs Dairy Unit) was runner up to the Dairy Trainee of the Year and winner of the region’s

Farming Knowledge Merit Award for trainees. In this region also, Hayden George (Bell Hill Dairy Unit) won the Westpac Financial Planning andManagement Merit Award for dairy farm managers.

WORKING with winners

32

OPERATIONAL REVIEW



PASSION FOR THE ENVIRONMENTRangedale Farm Managers Paul and Donna Edwards won the 2012 supreme award in the Horizons region of the Ballance Farm Environment Awards

(BFEAs). Paul and Donna also won the Dalrymple Habitat Improvement Award for integration of trees into a farming operation.

The BFEA judges described Rangedale (see pages 27–29) as “an excellent example of how a large scale hill country farm can be run in conjunction

with the environment”.

Elsewhere in the BFEAs for 2012, the Waikato Regional Council Water Protection Award went to Ian Nelson and Resolution (see left also). The

judges praised the “passion and ownership” of Ian and wife Judy for all aspects of farming and environmental sustainability. The award recognized,

in particular, Resolution’s separation of pasture from river, and the maintenance of silt traps to stop run-off and pumice from entering waterways.

In the Bay of Plenty region, Rangitaiki Station and Farm Business Manager Ross Shepherd won the BFEA Laboratories Harvest and the Beef + Lamb

NZ Livestock awards for this year. The judges said the 9,694-hectare property demonstrates sustainable farming practices within a large farming

enterprise, and a commitment to raising awareness on sustainability issues.

Duncraigen, managed by Matt Canton and wife Rose, was a finalist for the supreme BFEA in the Southland region. The judges highlighted

the productive team work clearly evident on Duncraigen and its 1,284-hectare Wiremu Angus breeding unit. The judges commented: “Stock

management was excellent, and Matt has a good team around him who are all on board with the monitoring and recording they do.”

GIFTED COMMUNICATORHawke’s Bay farmer Steve Wyn-Harris has received the 2012 Landcorp Agricultural Communicator of the Year

Award from the New Zealand Guild of Agricultural Journalists and Communicators.

Steve has long been an active commentator on farming and agricultural science through a local radio show,

contributions to National Radio, conference presentations, and regular columns in the New Zealand Farmers

Weekly and other publications.

Steve and wife Jane farm 350 hectares near Takapau. They run high-performance breeding ewes, a coopworth sheep stud and a bull beef unit.

The property also has significant areas planted in forestry and native vegetation. Steve was a Landcorp director from 2002-2008.

The Landcorp Communicator of the Year Award recognises excellence in communicating agricultural issues, events or information. Steve was

selected by an independent panel of 10 judges. “He is widely respected as an excellent farmer, but also has that rare gift of communication thatcrosses all areas of rural life,” said Guild President Jon Morgan.




BOARD OFDIRECTORS

2012

| LEFT TO RIGHT; Bill Baylis, Traci Houpapa, Chris Day,

Nikki Davis-Colley, Basil Morrison, Pauline Lockett,

John Brakenridge and Warren Larsen.

34




BILL BAYLIS

Chairman

M.Com (Hons), FCA, F NZIM, AF Inst.D.

Mr Baylis was appointed to the Landcorp Board in November 2009. Heis currently Chairman of Blackhead Quarries Ltd, Dairy Holdings Ltd;

and is a director of Port of Tauranga, Dunedin City Holdings Ltd, and

several other companies. He has held a number of appointments in

the agricultural sector and is currently Chairman of the Accreditation

Board of the Institute of Directors in New Zealand. He practiced as

a Chartered Accountant, as a principal in KPMG and its predecessor

firms from 1969, and from 1992 on his own account until 2010.

WARREN LARSEN

Deputy Chairman

CNZM, BBS, CA, CMA, MAgSc(Hons), F NZIM, AF Inst.D, DSc(Hon).

Mr Larsen was appointed to the Landcorp Board in May 2006 as

Deputy-Chairman. He is a Principal in Larsen Consulting Ltd, Chairman

of Centreport Ltd, and AZAEL Ltd. He is a director of Air New Zealand,

Alpine Energy Ltd and NetCon Ltd. He was formerly Chief Executive

Officer of, respectively, Bay Milk Products Ltd and the New Zealand

Dairy Board and was closely involved with the creation of Fonterra

Co-operative Group Ltd. He is an alumni of the INSEAD Business

School and has had significant international business and marketing

experience, particularly in the pastoral export industries.

JOHN BRAKENRIDGEDip Hort (Lincoln), MBA.

Mr Brakenridge was appointed to the Landcorp Board in May 2011.

He is CEO of New Zealand Merino Co Ltd. His experience and passion

spans a number of areas in the primary sector, including horticulture

in both a strategic capacity and in international marketing for

Cedenco Foods in the late 1980s and early 1990s. In 1999 he was

awarded the Marketer of the Year Award at the TVNZ/Marketing

Magazine New Zealand Markets Awards. He has completed executive

education at, and has an ongoing affiliation with, the Stanford

University Graduate School of Business in the USA. In October

2010 he was winner of the Outstanding Leader Category at the

NZTE International Business Awards. He is an active member of the

Synlait Innovation Advisory Committee and until recently was an

appointed Member of the New Zealand Government Privacy Growth

Partnership Panel.

NIKKI DAVIES-COLLEYBBS, MBA (Dist), A NZIM, AM InstD.

Ms Davies-Colley was appointed to the Landcorp Board in May 2012.

She has farmed cattle, sheep and trees in Titoki, Northland since 1985.

The family farm is now leased to a new generation of farmers. She

has owned and managed companies involved in forest and harvest

management, mainly on farm scale woodlots, as well as large scale

logging, since 1992. She has been involved in governance roles since

1994. Ms Davies-Colley is currently a director of Northpower Ltd,

Whangarei Local Fibre Company Ltd, West Coast Energy Pty Ltd,Farmlands Ltd and The Tree People Ltd.

CHRIS DAYBBS, CA, CTP, M InstD.

Mr Day was appointed to the Landcorp Board in May 2012. He

is a Chartered Accountant and most recently was Chief FinancialOfficer for AXA New Zealand from 2006 to 2011. He has a range

of international and New Zealand business experience in executive

and governance roles. Mr Day grew up on a sheep and beef farm at

Pahiatua in the North Wairarapa, with his family having farmed in

the Wairarapa since the 1850s. Currently he is the Group Financial

Controller for Contact Energy Limited.

TRACI HOUPAPAMNZM, JP, MBA.

Ms Houpapa was appointed to the Landcorp Board in May 2010.

She is a partner with THS and Associates Ltd, a Hamilton-based

consulting firm providing professional advice in strategic and businessplanning and organisational development to public and private sector

clients throughout New Zealand. Her other directorships include

Strada Corporation Ltd, Pemberton Construction Ltd and Nga Pae O

Te Maramamatanga Centre of Research Excellence. She is Chairman

of the Federation of Maori Authorities and holds a number of

appointments on Maori authorities. She is a Crown appointee on the

Rural Broadband Initiative (RBI) and the National Advisory Council on

Employment of Women.

PAULINE LOCKETTB.Com, ACA.

Ms Lockett was appointed to the Landcorp Board in May 2012. Sheis currently a Councillor with the New Plymouth District Council

and a Board member on the Taranaki District Health Board. She was

a partner of PricewaterhouseCoopers for 20 years until retirement

in June 2010. During that time she acted in an advisory capacity

to her many varied clients, a significant number of whom were

farming clients.

BASIL MORRISONCNZM, JP.

Mr Morrison was appointed to the Landcorp Board in May 2008

and has had significant roles in both central and local Government.

He is Chairman of the Local Government Commission. He has been

President of Local Government New Zealand, is a past Chairman of

the Commonwealth Local Government Forum and was an elected

member of the Ohinemuri County, Hauraki District Council (as

Mayor) and Environment Waikato. Currently he is a director of Civic

Assurance, Chairman of the NZ Local Government Superannuation

Board of Trustees, a member of the Waitangi Tribunal and the NZ

Geographic Board as well as being Honorary Consul for the Republic

of Uganda. He is the Principal of Basil J. Morrison & Associates.

Mr Morrison farmed on his own account for 22 years and is a director

and shareholder of Waiuta Farms Ltd.




EXECUTIVEGROUP

2012

RICHARDPERRYB.Com (Hons),

CA, CTP.

Chief FinancialOfficer

PHILMCKENZIEDip Agr, Dip FM,

Dip VPM, M. Phil,

MBA, SPINZ,

ANZIV, Reg Valuer.

National Manager – Technology &Property

JOHNKENNEDY-GOODBA, LLB (Hons),

LLM (London),

Barrister & Solicitor.

Company Secretary

CHRISKELLYMVSc, MACVSc,

AFInstD.

Chief Executive

GRAEMEMULLIGANB. Ag Com, VFM,

SPINZ, NZIPIM,

Reg Valuer.

National BusinessManager

ANDREWMACPHERSONBVSc, MBA (dist),

FNZIM.

National Manager – Strategy &Performance

ALLANSTILLB AgCom, SPINZ,

NZIPIM, Reg Valuer.

National BusinessManager

36




Landcorp is a State-Owned Enterprise

incorporated under the Companies Act

1993. Its shareholders are the Minister of

Finance and the Minister for State Owned

Enterprises. Landcorp’s Vision is “To be the

world’s most effective pastoral livestock

farmer.” Its mission is “To be New Zealand’s

best livestock farmer: environmentally,

socially and economically”. Its principle

objective is to operate as a successful

company exemplifying its core valueswhich are:

• To act honestly and with integrity;

• To be environmentally responsible;

• To be a fair employer; and

• To champion success and excellence.

The Shareholders

To enable shareholding Ministers to make

an informed assessment of the governance,

performance and value of their investment,

meaningful and timely disclosure of relevant

information is presented to them through

quarterly reports, the annual business

plan and through a “no surprises policy”

including continuous disclosure of “material

information.”

The Statement of Corporate Intent,

unaudited half yearly accounts and the

Annual Report with audited financial

statements are tabled in Parliament

each year and may be viewed on the

Company’s website.

The Board

In accordance with best practice, the Board

has adopted a Charter which sets out the

authority, responsibilities, membership

and operation of the Board of Directors in

the governance of Landcorp. Specifically it

requires directors to observe high standards

of ethical and moral behaviour, to act in the

best interests of the Shareholders, to ensure

that Landcorp acts as a good corporatecitizen taking into account environmental,

social and economic issues and to recognise

the legitimate interest of all Stakeholders

including staff.

In addition to the Board Charter, the Code of

Practice for Directors issued by the Institute

of Directors in New Zealand (Inc) provides

guidance to directors to assist them in

carrying out their duties and responsibilities

in accordance with the highest standards.

These values include integrity, enterprise,

fairness, transparency, accountability and

efficiency. They embrace the Principles andGuidelines for Corporate Governance issued

by the New Zealand Securities Commission

(now the Financial Markets Authority) which

has also been adopted by the Board. These

include adherence to high ethical standards,

effective use of Committees, integrity

and timeliness of financial reporting and

disclosures, risk management, constructive

relationship with shareholders, and public

accountability to stakeholders.

Induction of new directors, continuing

education and annual visits to various

Landcorp farms in the North and South

Islands respectively ensure that directors

remain in touch with Landcorp’s core

business.

Subsidiary Boards and Committees

Landcorp has three subsidiary companies.

Landcorp Estates Ltd, which develops

and sells land with a value higher than

farming, and Landcorp Holdings Ltd,

which owns property protected from sale

under an agreement with the Crown. Each

have as directors Landcorp’s Chairman and

Deputy Chairman and two directors from

management.

Landcorp Pastoral Ltd, which holds

shares in Focus Genetics Ltd Partnership

(LP), comprising two directors drawn from

management.

The Board has two committees. The Audit

and Due Diligence Committee deals with

financial matters, risk mitigation, insurance

and major legal contracts. The Employment

Committee deals with remuneration, health

and safety, staff training and development.

Management

The respective roles of the Board and

management are well documented and

understood. Board authority conferred on

management is delegated through the Chief

Executive. Operational and financial policies

and procedures are approved by the Board.

The Treasury Management Committee

comprising executive staff and an external

advisor meets monthly to oversee the

Company’s treasury management functions

which are then reported to the Board.

Audit

Deloitte remains the external auditor

appointed by the Office of the Controller

and Auditor General (“OAG) for this financial

year. In accordance with its rotation policy,

the OAG has not renewed the appointment

for 2012/13 and has appointed KPMG to the

role. Internal audit services are provided by

PricewaterhouseCoopers.

The table on page 38 sets out the meetings

attended by Directors during the year.

CORPORATEGOVERNANCE




Board and Committee MeetingsYear to 30 June 2012

Director Appointed Retired

LandcorpFarming

Ltd

(11 meetings)

Audit and DueDiligence

Committee

(4 meetings)

EmploymentCommittee

(2 meetings)

LandcorpEstates

Ltd

(4 meetings)

LandcorpPastoral

Ltd

(4 meetings)

LandcorpHoldings

Ltd

(5 meetings)

Hon. J R Sutton 01.08.06 30.04.12 Chair 8 4 2 Chair 4 Chair 5

A W Baylis 01.11.09

Chair: 01.05.12

8 - Chair 3 4

J D Brakenridge 01.05.11 7 2

C W Day 01.05.12 3N P Davies-Colley 01.05.12 3

P N Lockett 01.05.12 1

T Houpapa 01.05.10 8 3

M L James 06.04.03 30.04.12 8 Chair 4

W A Larsen 01.05.06 10 Chair 2 3 4

J M Mitchell 01.05.09 30.04.12 8 4

B J Morrison 01.05.08 11 2

C M Kelly 29.10.01 4 Chair 4 5

J C Kennedy-Good 24.03.06 4

A J Still 24.04.07 4

R R Perry 30.08.10 4

38




FINANCIALSTATEMENTSAND DISCLOSURE INFORMATION

| RANGEDALE.





Contents

Statement of Comprehensive Income 41

Statement of Movements in Equity 42

Statement of Cash Flows 44

Statement of Financial Position 46

Notes to the Financial Statements: 48

1 Reporting Entity 48

2 Basis of Preparation 48

3 Significant Accounting Policies 48

4 Critical Accounting Judgements,

Estimates and Assumptions 54

5 Standards, amendments and

interpretations issued that are not

yet effective and have not been

early adopted 56

6 Livestock 57

7 Milk Revenue 58

8 Wool Revenue 59

9 Forestry 59

10 Equity Accounted Investments 61

11 Other Gains and Losses 62

12 Other Income 62

13 Farm Working Expenses 63

14 Personnel 63

15 Depreciation and Amortisation 6416 Maintenance 64

17 Other Operating Expenses 65

18 Net Finance Costs 65

19 Accounts Receivable 66

20 Inventory 66

21 Property Held for Sale 66

22 Other Financial Assets and Liabilities 67

23 Intangible Assets 70

24 Property, Plant & Equipment 71

25 Accounts Payable and Accruals 74

26 Redeemable Preference Shares 74

27 Capital Management 75

28 Dividends 76

29 Income Tax 76

30 Reconciliation of Profit and

Operating Cash Flow 79

31 Risk Management 80

32 Related Parties 85

33 Contingent Assets and Liabilities 86

34 Commitments 87

35 Subsidiary Companies 87

Independent Auditor’s Report 88

Disclosures in Terms of the

Companies Act 1993 89

Interests Register 89

Directors’ Interests 89

Use of Company Information 90

Share Dealings 90

Directors’ Remuneration and

Other Benefits 91

Employees’ Remuneration and

Other Benefits 91

Indemnity and Insurance 91

Directory 92


http://slidepdf.com/reader/full/2012-landcorp-annual-report-2012-http-wwwlandcorpconzassetsnew-news 43/96412012 | ANNUAL REPORT

Statement of Comprehensive IncomeFOR THE YEAR ENDED 30 JUNE 2012

Group Group Parent Parent

Note 2012 2011 2012 2011

$000 $000 $000 $000

Revenue

Livestock 6 114,323 108,093 114,323 108,093

Milk 7 82,989 94,615 82,989 94,615

Wool 8 10,163 10,888 10,163 10,888

Forestry 9 1,908 5,215 1,922 5,086

Other produce 1,158 602 1,158 602

210,541 219,413 210,555 219,284

Income from equity accounted investments 10 626 27 35 –

Other gains and losses 11 1,691 (3,551) 1,064 (4,274)

Other income 12 2,881 2,558 4,506 2,496

215,739 218,447 216,160 217,506

Expenses

Farm working expenses 13 82,526 73,999 82,526 73,999

Personnel 14 45,393 44,203 45,393 44,089

Depreciation and amortisation 15 13,280 12,461 13,143 12,321

Maintenance 16 12,913 11,349 12,877 11,293

Other operating expenses 17 24,376 23,794 26,832 25,279

178,488 165,806 180,771 166,981

Net Profit before Interest, Property Sales and Revaluations 37,251 52,641 35,389 50,525

Interest income 7 55 1,337 1,991

Interest expense (10,245) (10,459) (10,245) (10,459)

Net Finance Costs 18 (10,238) (10,404) (8,908) (8,468)

Net Operating Profit 27,013 42,237 26,481 42,057

(Loss)/profit on sale of land – 10,314 (125) 10,310

Revaluation Gains and Losses

(Loss)/gain due to price changes on forests 9 (1,313) 2,893 (1,321) 2,859

(Loss)/gain due to price changes on livestock 6 (30,349) 75,640 (30,349) 75,640

Loss due to price changes on financial instruments 22 (7,513) (2,012) (7,513) (2,012)

Loss on revaluation of property, plant and equipment (5,564) (1,691) (5,564) (1,691)

Net (Loss) Profit before Tax (17,726) 127,381 (18,391) 127,163

Tax income (expense) 29 8,312 (12,789) 8,276 (12,966)

Net (Loss) Profit after Tax (9,414) 114,592 (10,115) 114,197

Other Comprehensive Income

Gain on revaluation of land and improvements 13,314 17,695 13,562 17,695

Revaluation losses transferred to and recognised

in profit and loss 5,564 1,691 5,564 1,691

Gain on revaluation of available-for-sale

financial assets 22 144 518 144 518

(Loss)/gain due to price changes on intangible assets (1,092) 5 (1,025) 5

Prior year revaluations transferred to profit or loss on

disposal of available-for-sale financial assets (6) (94) (6) (94)

Income tax on income and expense recognised in equity 29 (668) (1,951) (668) (1,951)

Total Comprehensive Income 7,842 132,456 7,456 132,061

The accompanying notes form part of these financial statements.

The Directors note that the Net Profit (Loss) after Tax as reported under NZ IFRS includes significant revaluation gains and losses on livestock,

land and buildings and financial instruments used for interest rate hedging. These gains and losses are valued at a particular time and do not

represent cash flows that are received in the ordinary course of business. Accordingly, Landcorp’s dividend is based on Net Operating Profit.




Statement of Movements in EquityFOR THE YEAR ENDED 30 JUNE 2012


Note 2012 2011 2012 2011

$000 $000 $000 $000

Ordinary Shares

Balance beginning of year 125,000 125,000 125,000 125,000

Balance end of year 27 125,000 125,000 125,000 125,000

Retained Earnings


Net (loss) profit after tax (9,414) 114,592 (10,115) 114,197

Transfers from (to) revenue reserves 37,862 (73,628) 37,862 (73,628)

Dividends paid 28 (27,500) (18,000) (27,500) (18,000)


Revenue Reserves

Biological assets revaluation reserve


Transfer (to) from retained earnings (30,349) 75,640 (30,349) 75,640


Financial assets revaluation reserve

Balance beginning of year (14,644) (12,632) (14,644) (12,632)

Transfer to retained earnings (7,513) (2,012) (7,513) (2,012)

Balance end of year 27 (22,157) (14,644) (22,157) (14,644)

Fair Value Reserve


Recognised in profit and loss on disposal 11 (6) (94) (6) (94)

Revaluation of available-for-sale financial assets 22 144 518 144 518

Net tax effect on revaluation 29 (39) (119) (39) (119)





Note 2012 2011 2012 2011

$000 $000 $000 $000

Asset Revaluation Reserves

Intangible assets

Balance beginning of year 5 – 5 –

Net value change during year 23 (1,092) 5 (1,025) 5

Balance end of year 27 (1,087) 5 (1,020) 5

Freehold land and improvements


Transfers from (to) other equity on sale 20 (7,085) (2,409) (7,085)

Transfers (to) from property held for sale (39,499) 11,024 (39,499) 11,024

Net value change during year 24 13,562 17,695 13,562 17,695

Revaluation losses recognised in profit and loss 5,564 1,691 5,564 1,691

Tax effect of reserve movements 29 (629) (1,832) (629) (1,832)


Property held for sale

Balance beginning of year 5,282 16,306 – 11,024

Transfers to other equity on sale (233) – – –

Transfers from (to) freehold land and improvements 39,499 (11,024) 39,499 (11,024)

Value change during year (248) – – –

Balance end of year 27 44,300 5,282 39,499 –

Other Equity


Transfers from assets revaluation reserves 213 7,085 2,409 7,085


Total Equity

Balance beginning of year 1,351,627 1,237,171 1,353,604 1,239,543

Net profit after tax (9,414) 114,592 (10,115) 114,197

Other comprehensive income:

Gain on revaluation of land and improvements 13,314 17,695 13,562 17,695

Revaluation losses transferred to and recognised

in profit and loss 5,564 1,691 5,564 1,691

Gain on revaluation of available-for-sale

financial assets 144 518 144 518

Loss/(gain) on revaluation of intangible assets (1,092) 5 (1,025) 5

Prior year revaluations transferred to profit or loss

on disposal of available-for-sale financial assets (6) (94) (6) (94)

Income tax on income and expenserecognised in equity (668) (1,951) (668) (1,951)

Dividends paid (27,500) (18,000) (27,500) (18,000)

Balance end of year 1,331,969 1,351,627 1,333,560 1,353,604





Statement of Cash FlowsFOR THE YEAR ENDED 30 JUNE 2012


Note 2012 2011 2012 2011

$000 $000 $000 $000

Operating Activities

Cash was received from:

Receipts from customers

Livestock 120,363 104,740 120,363 104,740

Milk 88,719 90,717 88,719 90,717

Other receipts from customers 20,215 16,183 20,774 15,080

Interest received 7 79 1,395 2,027

Dividends received from equity accounted joint investments 61 150 – –

Other dividends received 833 54 539 54

Net GST (paid) received (286) 5,383 (114) 4,651

229,912 217,306 231,676 217,269

Cash was applied to:

Payments to suppliers 125,093 113,478 127,794 113,550

Payments to employees 43,789 41,858 43,789 41,740

Interest paid 9,982 10,133 9,982 10,133

Income tax received (79) (6) – –

178,785 165,463 181,565 165,423

Net Cash Flows from Operating Activities 30 51,127 51,843 50,111 51,846

Investing Activities


Sale of land and improvements 18,617 4,535 18,553 2,712

Sale of other property, plant and equipment 727 955 978 903

Sale of intangible assets – 203 – 203

Sale of other investments (317) 60 (8) 60Transfer from amalgamated subsidiaries – – – 10,434

19,027 5,753 19,523 14,312


Purchase and development of land 36,366 46,512 33,128 44,313

Purchase of other property, plant and equipment 14,308 11,288 14,183 11,144

Purchase of intangible assets 153 – 153 –

Purchase of investments in associates 1,098 – 1,098 –

Purchase of shares and advances 4,719 7,207 4,719 7,207

Net subsidiary investment – – 12,962 341

56,644 65,007 66,243 63,005

Net Cash Flows from Investing Activities (37,617) (59,254) (46,720) (48,693)




Note 2012 2011 2012 2011

$000 $000 $000 $000

Financing Activities


Net borrowing receipts 14,100 7,800 14,100 7,800

14,100 7,800 14,100 7,800


Dividends paid 28 27,500 653 27,500 653

27,500 653 27,500 653

Net Cash Flows from Financing Activities (13,400) 7,147 (13,400) 7,147

Net Change in Cash and Cash Equivalents 110 (264) (10,009) 10,300

Cash and cash equivalents at beginning of year 454 718 11,709 1,409

Cash and Cash Equivalents at End of Year 564 454 1,700 11,709

Cash and cash equivalents comprises cash balances

held with registered New Zealand banks –

Cash at bank 564 454 1,700 11,709






Note 2012 2011 2012 2011

$000 $000 $000 $000

Assets

Cash and Cash Equivalents 564 454 1,700 11,709

Accounts Receivable 19 22,495 44,501 22,549 44,467

Inventories 20 10,095 9,659 10,095 9,659

Property Held for Sale 21 87,782 25,419 60,146 –

Biological Assets

Livestock 6 265,793 297,085 265,793 297,085

Forests 9 16,225 16,807 15,356 15,964

Total Biological Assets 282,018 313,892 281,149 313,049

Equity Accounted Investments 10 3,732 2,643 1,098 –

Deferred Tax Asset 29 10,029 2,387 7,558 –

Other Financial Assets 22 48,943 45,200 206,179 189,474

Intangible Assets 23 1,706 1,741 1,654 1,637

Property, Plant and Equipment 24

Land and improvements 1,033,557 1,058,426 1,033,557 1,058,426

Protected land 118,596 117,766 – –

Plant 24,033 22,701 24,033 22,701

Motor vehicles 16,789 15,557 16,789 15,557

Furniture and equipment 2,064 2,133 2,064 2,133

Computer equipment 481 494 481 494

Total Property, Plant and Equipment 1,195,520 1,217,077 1,076,924 1,099,311

Total Assets 1,662,884 1,662,973 1,669,052 1,669,306

Statement of Financial PositionAS AT 30 JUNE 2012




Note 2012 2011 2012 2011

$000 $000 $000 $000

Liabilities

Accounts Payable and Accruals 25 18,507 19,591 23,084 23,897

Employee Entitlements 8,560 8,337 8,560 8,337

Deferred Tax Liability 29 – – – 50

Other Financial Liabilities 22 186,093 165,663 186,093 165,663

Redeemable Preference Shares 26 117,755 117,755 117,755 117,755

Total Liabilities 330,915 311,346 335,492 315,702

Shareholders’ Funds

Share capital 125,000 125,000 125,000 125,000

Retained earnings 124,204 123,256 248,216 247,969Revenue reserves 104,558 142,420 103,688 141,550

Fair value reserve 1,813 1,714 4,145 4,046

Asset revaluation reserves 746,982 730,038 632,262 617,199

Other equity 229,412 229,199 220,249 217,840

Total Shareholders’ Funds 27 1,331,969 1,351,627 1,333,560 1,353,604

Total Equity and Liabilities 1,662,884 1,662,973 1,669,052 1,669,306


Landcorp’s Board of Directors authorised the financial statements for issue on 27 August 2012.

Signed on behalf of the Board

Bill Baylis Pauline Lockett

Chairman Chairman of Audit and Due Diligence Committee

27 August 2012




Statement of Accounting Policies

Note 1 – Reporting Entity

Landcorp Farming Ltd (“Landcorp”) is a profit-oriented company, incorporated and domiciled in New Zealand. Landcorp is established under the

State-Owned Enterprises Act 1986 and registered under the Companies Act 1993. Landcorp’s ultimate parent is the Crown, which owns 100% of

Landcorp’s shares, held beneficially by the Minister of Finance (50%) and the Minister for State-Owned Enterprises (50%).

Landcorp Farming Ltd is primarily involved in pastoral farming and provision of farm management services within New Zealand. Subsidiary

companies are involved in land development, land management, farm technology and developing genetically superior sheep, cattle and deer

breeds. All subsidiaries, associates and jointly controlled entities are incorporated and domiciled in New Zealand.

The address of Landcorp’s registered office and principal place of business is shown in the directory of the Annual Report.

Consolidated financial statements are presented for the “Group”, comprising Landcorp Farming Ltd, subsidiaries, associates and jointly-controlled

entities. Financial statements are presented for the “Parent”, Landcorp Farming Ltd.

The financial statements of Landcorp and the Group are for the year ended 30 June 2012. The financial statements were authorised for issue by

the Board of Directors on 27 August 2012.

Note 2 – Basis of Preparation

Statement of complianceThese financial statements have been prepared in accordance with NZ GAAP under the Companies Act 1993 and the Financial Reporting Act 1993.

These financial statements comply with NZ IFRS, and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities.

The financial statements also comply with International Financial Reporting Standards (IFRS).

Measurement baseThe financial statements have been prepared using a historic cost basis, modified by the revaluation to fair value of certain assets and liabilities as

disclosed below.

Functional and presentation currencyThe financial statements are presented in New Zealand dollars (NZ$) and all values are rounded to the nearest thousand dollars ($000). The

functional currency of Landcorp is NZ$.

Changes in accounting policiesThere have been no changes in accounting policies during the financial year.

Comparative informationWhen presentation or classification of items in the financial statements is amended or accounting policies are changed, comparative figures are

restated to ensure consistency with the current period unless it is impracticable to do so.

Note 3 – Significant Accounting Policies

Basis of consolidation

Subsidiaries

Subsidiaries are companies controlled by Landcorp and are included in the consolidated financial statements using the purchase method of

consolidation. In the Parent, subsidiaries are valued at cost.

All significant intercompany balances and transactions are eliminated on consolidation. Unrealised gains arising from transactions with jointly

controlled entities are eliminated to the extent of Landcorp’s interest in the entity.

Notes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2012



Associates

Landcorp’s associate investment is accounted for using the equity method. The investment in an associate is initially recognised at cost and

the carrying amount is increased or decreased to recognise the share of the surplus or deficit of the associate after the date of acquisition.

Distributions received from an associate reduce the carrying amount of the investment.

When the Group’s share of losses exceeds the Group’s investment a liability is recognised to the extent the Group has incurred a constructive or

legal obligation. If the associate subsequently reports surpluses, Landcorp will resume recognising its share of those surpluses after its share of the

surpluses equals the share of deficits not recognised.

Joint ventures

Joint ventures comprise jointly-controlled entities and jointly-controlled operations. Jointly-controlled entities are companies that Landcorp

shares joint-control over and are included in the financial statements using the equity method. When the Group’s share of losses exceeds the

Group’s investment a liability is recognised to the extent the Group has incurred a constructive or legal obligation.

Landcorp’s assets and liabilities used in jointly-controlled operations, including sharemilking, are accounted for in the same manner as assets

and liabilities used in Landcorp’s other farming operations. Landcorp does not account for any assets owned by the joint venture partners.

Landcorp recognises its share of revenue (and any expense) under the same revenue recognition policies used in other farming operations.

RevenueRevenue is measured at the fair value of consideration received or receivable.

Livestock sales

Livestock sales, and sales of other agricultural produce, are recognised upon receipt by the customer when the risks and rewards of ownership

have been transferred.

Agricultural produce

Agricultural produce, including milk and wool, is recognised at the point-of-harvest at its fair value less estimated point-of-sale costs.

ServicesRevenue from services is recognised as services are provided.

Profit on asset sales

Profit on asset sales is recognised at the point of formal unconditional contract for sale and when the significant risks and rewards of ownership

have been transferred.

Interest and dividends

Interest revenue is recognised using the effective interest method.

Dividends are recognised when the right to receive payment has been established.

Operating leasesLease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term.

Borrowing costsBorrowing costs that are directly attributable to the acquisition of an asset are capitalised as part of the cost of that asset. Other borrowing costs

are recognised as an expense in the Statement of Comprehensive Income in the period in which they are incurred.

Cash and cash equivalentsCash and cash equivalents include cash on hand and cash held with banks, including bank overdraft.

Accounts receivableAccounts receivables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest method,

less any provision for impairment. An allowance for irrecoverable amounts is recognised in the Statement of Comprehensive Income when there

is objective evidence that a receivable is impaired.

Note 3 – Significant Accounting Policies (continued)




InventoryInventory is stated at lower of cost or net realisable value at balance date. The cost of agricultural produce transferred into inventory is measured

at its fair value less estimated point-of-sale costs at date of harvest. Net realisable value represents the estimated selling price of inventories less

all estimated costs of completion and sale costs.

Property held for saleProperty held for sale comprises property that has been identified for sale and development land. Properties that have been identified for sale are

classified as property held for sale when a sales plan has been implemented and an unconditional sales contract is expected to be signed within a

year. Development land is held for sale to development joint venture entities.

Property held for sale is measured at the lower of the carrying value of the property when it was classified as property held for sale and fair value

less sales costs.

Biological assets

(a) Livestock

Livestock are recorded at fair value less estimated point-of-sale costs.

Changes in the value of livestock are recognised in the Statement of Comprehensive Income. Value changes that form part of Landcorp’s livestock

management policies, including animal growth and changes in livestock numbers, are recognised in the Statement of Comprehensive Income

within revenue. Changes in value due to general livestock price movements are beyond Landcorp’s control and do not form part of Landcorp’s

livestock management policies. These value changes are recognised in the Statement of Comprehensive Income as gain/loss due to price changes

on livestock.

(b) Forests

Forests are recorded at fair value less estimated point-of-sale costs, based on estimated cashflows and using a market discount rate.

Changes in the value of forests are recognised in the Statement of Comprehensive Income. Value changes that form part of Landcorp’s forest

management policies, including forest growth, are recognised in the Statement of Comprehensive Income within profit before property sales and

revaluations. Changes in value due to movements in general forestry prices are beyond Landcorp’s control and do not form part of Landcorp’sforest management practices. These changes in value due to price movements are recognised as gain/loss due to price changes on forests.

Standing forests are only sold as part of a land sale and do not form part of Landcorp’s forest management practices. Profits arising from the sale

of standing forests are recognised in the Statement of Comprehensive Income as profit on sale of forests.

Other financial assets

(a) Investments in subsidiaries

Investments in subsidiaries are recorded at cost.

(b) Loans to subsidiaries

Loans to subsidiaries are recorded at amortised cost, using the effective interest method.

(c) Other loans and receivables

Other loans and receivables are recorded at amortised cost, using the effective interest method.

(d) Held-for-trading instruments

Derivative financial instruments are used by Landcorp to hedge interest-rate, foreign currency and commodity risks. Landcorp’s financial

management policies explicitly prohibit trading in financial instruments. However, the Group has elected not to apply hedge accounting.

This means that all derivative financial instruments must be classified as held-for-trading for the purpose of NZ IFRS.

Held-for-trading instruments are recognised in the Statement of Financial Position as either assets or liabilities at fair value on trade date, with

changes in fair value reported as revaluation gains and losses in the Statement of Comprehensive Income. The cash-flows arising from interest-rate

derivatives are reported as a component of net finance costs in the Statement of Comprehensive Income.


NOTES TO THE FINANCIAL STATEMENTS CONTINUED



(e) Available-for-sale investments

The Group is required to hold certain shares and investments in cooperative processing companies to facilitate farming operations. As such, the

Group is normally unable to sell these investments without disrupting the Group’s business operations. Under NZ IFRS, Landcorp’s portfolio of

shares and other investments in various cooperative and processing companies is classified as available-for-sale.

Available-for-sale investments are valued at fair value. Other changes in value are reported as other comprehensive income in the Statement of

Comprehensive Income. On sale the revaluation component is recognised within operating profit in the Statement of Comprehensive Income.

(f) Impairment of financial assets

All financial assets are reviewed at balance date for indications of impairment. Where objective evidence of impairment exists, an investment is

written down to the present value of expected cash flows, with the reduction in value being reported within operating profit in the Statement of

Comprehensive Income. Subsequently, if the impairment diminishes for non-equity financial instruments, the appreciation in value is reported in

the Statement of Comprehensive Income, to the extent that it reverses previous impairment losses.

Intangible assets

(a) Research and development

Research costs are expensed as incurred. An internally generated intangible asset arising from development costs is recognised when it is

probable that the asset will be completed and will generate future economic benefits.

(b) Carbon credits

Allocations or entitlements of New Zealand Units (NZU) and/or other carbon credits are initially recognised at fair value where Landcorp

is reasonably certain that they will be received and there is a market determined price. Other changes in the quantity of carbon credits are

recognised as an operating gain or loss based on fair value at time of transaction.

Carbon credits are valued at fair value in the Statement of Financial Position as an intangible asset, with changes in value being recorded as

revaluation gain/loss due to price changes on intangible assets in the Statement of Comprehensive Income.

(c) Other intangible assets

Other intangible assets that are acquired by the Group are recorded at cost, less accumulated amortisation and impairment losses.

(d) Amortisation

Intangible assets are amortised on a straight line basis over the expected useful life of the asset. The estimated useful lives for intangible

assets are:

Computer software 5 years

(e) Impairment

If the estimated recoverable amount of the asset is less than its carrying amount, the asset is written down to its estimated recoverable amount

and an impairment loss is recognised in the Statement of Comprehensive Income. Recoverable amount is the greater of fair value less costs to sell

and value in use.

Property, plant and equipmentProperty, plant and equipment consists of the following asset classes: land and improvements, protected land and improvements, plant, motor

vehicles, furniture and equipment and computer equipment.

Land is measured at fair value and buildings are measured at fair value less accumulated depreciation and impairment losses. Protected land

(including buildings on protected land) is valued at fair value at the time it is classified as protected land. Buildings are stated at this value less

accumulated depreciation.

All other items of property plant and equipment are measured at cost less accumulated depreciation and impairment losses.

(a) Revaluations

Freehold land and improvements (including buildings) are valued annually on 30 June at fair value by independent registered valuers.

Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount

restated to the assets revalued amount. Changes in valuation are taken to the freehold land and improvements revaluation reserve using the net

revaluation method. Where an assets downwards revaluation exceeds previous positive revaluations, the amount of the revaluation is repor ted

within profit or loss in the Statement of Comprehensive Income.





(b) Additions

An item of property, plant and equipment is initially recognised at cost plus directly attributable costs of bringing the item to working condition

for its intended use.

(c) Disposal

Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount of the asset. Gains or losses on

disposal of land are recognised as profit or loss on sale of land and gains and losses on disposal of other items of property, plant and equipment

are recognised as gain or loss on disposal of property, plant and equipment in the Statement of Comprehensive Income. When revalued areas are

sold, the revaluation reserve attributable to that item is transferred from the asset revaluation reserve to other equity.

(d) Depreciation

Depreciation is provided on a straight-line basis on all property, plant and equipment other than land. Depreciation rates are used to allocate the

cost or revalued amount of the assets to their estimated residual values over their useful lives. The useful lives of major classes of property, plant

and equipment have been estimated as follows:

Buildings on freehold land 30 – 60 years

Buildings on leased land 30 – 60 years

Buildings on protected land 30 – 60 years

Plant 3 – 10 years

Motor vehicles 4 – 10 years

Furniture and equipment 7 years

Computer equipment 3 years

(e) Impairment

If the estimated recoverable amount of the asset is less than its carrying amount, the asset is written down to its estimated recoverable amount.

For property, plant and equipment that are revalued annually, this difference is accounted for in the same manner as a downwards revaluation.

For property, plant and equipment recorded at depreciated historical cost an impairment loss is recognised in the Statement of Comprehensive

Income. Recoverable amount is the greater of fair value less costs to sell and value in use.

Accounts payable and accrualsAccounts payable and accruals are initially measured at fair value and subsequently measured at amortised cost using the effective

interest method.

Employee entitlementsEmployee benefits include salaries, wages, annual leave, accrued sick leave and long service leave. A provision for employee entitlements is

recognised for benefits attributable to employees. The provision is the estimated net present value of benefits expected to be paid.

ACC partnership programmeLandcorp belongs to the ACC Partnership Programme whereby it manages and is financially responsible for employee work-related illnesses

and accidents. Under the programme, Landcorp is liable for all its claims costs for a period of two years up to a specified maximum. At the end

of the two year period, Landcorp pays a premium to ACC for the value of residual claims, and from that point the liability for ongoing claims

passes to ACC.

The liability for the ACC Partnership Programme is measured using actuarial valuation of the present value of expected future payments to be

made in respect of employee injuries and claims that occurred up to the balance date. Consideration is given to anticipated future wage and salary

levels and experience of employee claims and injuries. Expected future payments are discounted using market yields on New Zealand government

bonds at balance date with terms to maturity that match, as closely as possible, the estimated future cash outflows.





Other financial liabilities

(a) Bank loans

Bank loans are initially recognised at their fair value. After initial recognition, all bank loans are measured at amortised cost using the effective

interest method.

(b) Financial guarantees

Financial guarantees are recognised at the higher of the initial fair value less, where appropriate, accumulated amortisation and the best estimate

of expenditure required under the financial guarantee contract.

Accounting for goods and services taxAll items in the financial statements are stated exclusive of goods and services tax (GST), with the exception of receivables and payables, which

are presented on a GST-inclusive basis.

The net amount of GST recoverable from, or payable to, the Inland Revenue Department (IRD) is included as part of receivables or payables in the

Statement of Financial Position.

The net GST paid to, or received from the IRD, including the GST relating to investing and financing activities, is classified as net operating cash

flow in the Statement of Cash Flows.

Commitments and contingencies are disclosed exclusive of GST.

Income taxIncome tax reported comprises current and deferred tax. Income tax is recognised in the Statement of Comprehensive Income, except where it

relates to an item recognised directly in equity, where the income tax is recognised directly in equity.

Current tax is the tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and

any adjustments to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying values of assets and liabilities

for financial reporting purposes and the tax base of those assets and liabilities. The amount of deferred tax provided is based on the differencebetween the tax base and the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised to the extent it is probable that future taxable benefits will be available against which the asset can be utilised.

Deferred tax assets and liabilities are offset when there is a legal right to offset tax liabilities with tax assets and when the Group intends to settle

on a net basis.

Provision for dividendsDividends are recognised in the period that they are authorised and declared.





Note 4 – Critical Accounting Judgements, Estimates and Assumptions

In preparing these financial statements Landcorp has made estimates and assumptions concerning the future. These estimates and assumptions

may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience andother factors, including expectations of future events that are believed to be reasonable under the circumstances.

Management has identified the following critical accounting policies for which significant accounting policy 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) Critical accounting estimates and assumptions

Valuation of investments and derivatives

Landcorp’s share portfolio comprises investments in cooperative companies. These companies commonly have restrictions on share ownership and

limited transferability of shares. Many of these shares may only be sold back to the cooperative company at the cooperative’s deemed share price.

The fair value of shares in cooperative companies is based on the lower of the current cost to purchase additional shares or required sale values.

The fair value of listed shares and other investments are based on reported market values at balance date.

Derivative financial instruments are valued based on estimated market values at balance date, given prevailing market interest rates and the terms

of the derivative instruments.

Valuation of freehold land and buildings

The valuation of freehold land and buildings is based on observed market prices for properties of similar location, land use and size. No discount

or premium has been made for the scale of Landcorp’s land holdings. Factors affecting the valuation of Landcorp’s freehold land and buildings are

detailed in Note 24.

The valuation of land and buildings takes into account the observed price effects of various legal obligations placed on Landcorp’s land ownership.

In the North Island deductions of 0–6% have been made for obligations arising from section 27B of the State Owned Enterprises Act. The South

Island properties include a deduction of up to 5% to reflect the effect of the Right of First Refusal granted to Ngai Tahu under the Ngai Tahu

Claims Settlement Act 1998.

Protected Land (including buildings on Protected Land) is valued at fair value at the time it is classified as Protected Land. Under the AgreementConcerning Landcorp Land Protected from Sale, 2007 (“Protected Land Agreement” or “PLA”), this value is considered to be the ongoing fair value

of the land to Landcorp.

Valuation of forests

Forests are valued based on estimated pre-tax cashflows, using a market discount rate of 12% and current log prices. Forested blocks less than

two hectares are not valued as these are not considered economically viable to harvest. The impact of biological transformation on forests under

10 years old is assumed to have minimal effect on their market value, and these are recorded at cost. Factors affecting the valuation of Landcorp’s

forests are detailed in Note 9.

Valuation of livestock

Landcorp values its livestock using market values provided by PGG Wrightson Ltd. These market values reflect livestock of similar age, breed and

genetic merit throughout New Zealand. Factors affecting the valuation of Landcorp’s livestock are detailed in Note 6.

Livestock revenue

Livestock income due to growth and change in numbers is calculated based on internally assessed values for each livestock type. These values are

set and reviewed annually by the Board based on year end livestock values.

Estimating the useful li ves of property, plant and equipment

The useful lives of property, plant and equipment is based on historical experience. Replacement policies for motor vehicles and the risk of

technological obsolescence for computer equipment are also considered.




(ii) Critical judgements in applying accounting policies

Classification of revenue

Landcorp considers its revenue to comprise the regular income generated by the ordinary activities of the Group. Landcorp receives various

incidental and irregular income due to items that are not related to Landcorp’s ordinary activities, and classifies these as other gains and losses or

revaluations. These include price revaluation gains and losses on livestock mainly held for breeding and production, and financial instruments held

for hedging purposes. This is considered to better present the results of Landcorp’s farming practices and core activities.

Revenue recognition

Livestock sales are recognised when the livestock is received in good order by customers. For the majority of Landcorp’s livestock sales the risks

and rewards of ownership are retained by Landcorp until the livestock is received by the customer.

Profit on land sales

Farm sales are recognised on settlement and possession as Landcorp remains exposed to climatic and operational risks associated with the farm

until settlement date.

Classification as property held for sale

Landcorp classifies assets and liabilities as held for sale when its carrying amount will be recovered through sale, rather than use. The assets and

liabilities must be available for sale in their current state, which means that property that requires subdivision or other consent processes in order

to sell is not classified as property held for sale.

Development land

Development land is classified as property held for sale and valued at the lower of the carrying amount at the time it was classified as held for

sale and fair value less costs to sell. Under joint venture development arrangements, Landcorp enters into a binding sales contract with the joint

venture company. The joint venture company then develops and markets the land. Unsold developed land will be returned to Landcorp, and the

related proportion of the sales contract cancelled. Consequently, Landcorp considers that the risks and rewards of ownership of the land only fully

pass to the joint venture company when the developed land is on-sold. Transfers of land to joint venture companies are recognised when legal

title (required for subdivision purposes) is transferred to joint venture companies, with a receivable recorded for the value of land. Profit on sale isrecognised when the developed land is on-sold by joint venture companies.

Reimbursement of protected land losses

Under the Protected Land Agreement, any accumulated profit or loss on a protected property will be settled between Landcorp and the Crown

when that property is transferred to the Crown. Reimbursement of accumulated profits or losses on a protected property are recognised when

the property has been included in an agreement in principle between the Crown and Iwi to settle a Treaty of Waitangi grievance.

Classification of investments and derivatives

Landcorp is required to classify its shareholding portfolio as available-for-sale and value it at fair value. The share portfolio largely comprises shares

and investments in agricultural cooperative and processing companies, which Landcorp is required to hold to facilitate farming operations. As such,

Landcorp is normally unable to sell these investments without disrupting Landcorp’s farming operations. Detail on the valuation of Landcorp’s

shareholding portfolio is shown in Note 22.

As Landcorp does not apply hedge accounting all derivative financial instruments are classified as held-for-trading. Derivative financial instruments

are used by Landcorp to hedge interest-rate, exchange-rate and commodity price risks. Landcorp’s policies explicitly prohibit trading in financial

instruments. Detail on the valuation of Landcorp’s derivative portfolio is shown in Note 22.

Note 4 – Critical Accounting Judgements, Estimates and Assumptions (continued)




Taxation

Current taxation expense is based on the potential taxation expense that would be filed with the taxation authority given managements intent at

balance date. Under taxation legislation, Landcorp has discretion in the valuation methodology used for assets and liabilities, and in the timing of

claiming expenses. The actual taxation expense may differ from that shown in the financial statements if management subsequently changes any

of these valuation methodologies.

Deferred tax balances result from taxable differences between balance sheet values and taxation values for assets and liabilities. Management’s

intention to use or sell, will determine whether a difference is taxable. Deferred tax balances relating to revalued land and livestock are required to

be based on the tax effect if all land and livestock were to be sold at balance date. Management has no intention of selling either affected land or

the entire livestock herd and any deferred tax liability is unlikely to be incurred in Landcorp’s ordinary course of business.

Note 5 – Standards, amendments and interpretations issued that are not yet effective and have not beenearly adopted

Standards, amendments and interpretations issued by the External Reporting Board (XRB) but not yet effective and are relevant to Landcorp that

have not been early adopted are:

Effective for annual reporting Expected to be initially applied

Standard periods beginning on or after in the financial year ending

NZ IFRS 9 ‘Financial Instruments: Classification and Measurement’ 1 January 2015 30 June 2016

NZ IFRS 10 ‘Consolidated Financial Statements’ 1 January 2013 30 June 2014

NZ IAS 27 ‘Separate Financial Statements’ 1 January 2013 30 June 2014

NZ IAS 28 ‘Investments in Associates and Joint Ventures’ 1 January 2013 30 June 2014

Except for NZ IFRS 9 Financial Instruments: Classification and Measurement, initial application of the above Standards and Interpretations is not

expected to have any material impact on the financial results of the Parent and Group. The adoption of NZ IFRS 9 will result in the reclassificationof Landcorp’s financial instruments. Landcorp’s share portfolio will change from the current available-for-sale classification to either fair-value-

through-profit-or-loss, or fair-value-through-other-comprehensive-income. Depending on the election made, revaluations of these shares and

associated gains and losses on disposal will be classified as either part of net profit or other comprehensive income. NZ IFRS-9 is the first stage

of a three stage revision of NZ IAS-39 Financial Instruments: Recognition and Measurement. Other effects on Landcorp’s financial statements are

unknown until the later stages of the revision are known.

Note 4 – Critical Accounting Judgements, Estimates and Assumptions (continued)




Note 6 – Livestock

A – NATURE OF ACTIVITIES

Landcorp is primarily a pastoral farming company, with most of its revenue being derived from livestock. Most livestock classes are primarily grown

for sale to meat processors. These may also provide ancillary income from various agricultural produce, such as wool and velvet. Dairy cattle are

primarily held to produce milk (see Note 7).

B – LIVESTOCK REVENUE

Landcorp’s livestock revenue by species was: Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Sheep 59,380 51,320 59,380 51,320

Beef 37,238 40,074 37,238 40,074

Deer 17,703 16,697 17,703 16,697

Other 2 2 2 2

Total Livestock Revenue 114,323 108,093 114,323 108,093


2012 2011 2012 2011

$000 $000 $000 $000

Livestock sales 119,948 102,925 119,948 102,925

Birth of animals 30,783 26,711 30,783 26,711

Growth of animals 49,262 50,459 49,262 50,459

Livestock losses (8,478) (8,422) (8,478) (8,422)

Book value of livestock sold (77,192) (63,580) (77,192) (63,580)

Total Livestock Revenue 114,323 108,093 114,323 108,093

Livestock revenue includes the recognition of net profit or loss arising from changes in livestock numbers due to the birth, growth, death and sales

of livestock. This value change arising from the change in livestock numbers and growth is calculated by assigning an internally assessed annual

value for each livestock class.

Livestock revenues in 2011/12 reflect increased production for all species and increased sales prices for sheep and deer compared with 2010/11.

Deer revenue is up $1.0 million or 6% and is a combination of higher average sales prices of 7% and higher numbers of 4%. The average sales

prices for sheep were up 14% and beef were down 2%. Sheep revenue was up $8.1 million or 16% reflecting higher prices and sales numbers.

Beef revenues were down $2.8 million or 7% reflecting lower sales prices and higher sales numbers.

C – VALUE OF LIVESTOCK

The value of livestock at 30 June was: Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Sheep 79,361 115,130 79,361 115,130

Beef 75,715 75,762 75,715 75,762

Dairy 68,312 65,120 68,312 65,120

Deer 42,374 41,037 42,374 41,037

Other 31 36 31 36

Total Value of Livestock 265,793 297,085 265,793 297,085

Livestock valuations at 30 June 2012 were provided by PGG Wrightson Ltd. These market values reflect l ivestock of similar age, breed and genetic

merit throughout New Zealand as at 30 June 2012.





The change in the value of livestock owned by Landcorp during the year was due to:


2012 2011 2012 2011

$000 $000 $000 $000

Livestock value at start of year 297,085 211,751 297,085 196,366

Value changes caused by:

Birth and growth of animals 80,045 77,170 80,045 77,170

Purchases 4,682 4,526 4,682 4,526

Livestock losses (8,478) (8,422) (8,478) (8,422)

Transfer of livestock from Landcorp Pastoral Ltd – – – 15,385

Livestock available for sale or production 373,334 285,025 373,334 285,025

Book value of stock sold (77,192) (63,580) (77,192) (63,580)

Effect of price changes (30,349) 75,640 (30,349) 75,640

Livestock Value at End of Year 265,793 297,085 265,793 297,085

The increase in growth reflects higher value of livestock.

Price changes for the year were due to a decrease in the market value of sheep, beef, dairy cattle and deer. As the majority of these gains arise on

livestock held for breeding and/or production, rather than sale, these gains are stated at a particular time and do not represent cash flows that are

realised in the ordinary course of livestock farming.

Livestock is classified as a current asset if it is likely to be sold within one year. This includes a proportion of the breeding livestock that are likely

to be sold as cull animals.


2012 2011 2012 2011

$000 $000 $000 $000

Current 78,761 87,291 78,761 87,291

Non-current 187,032 209,794 187,032 209,794

Total Value of Livestock 265,793 297,085 265,793 297,085

Note 7 – Milk Revenue

Milk revenue during the year was:


2012 2011 2012 2011

$000 $000 $000 $000

Milk Revenue

Total value of milk produced 84,566 96,432 84,566 96,432

Sharemilker share of milk production (1,577) (1,817) (1,577) (1,817)

Total Milk Revenue 82,989 94,615 82,989 94,615

During 2011/12 two of Landcorp’s dairy farms were operated by sharemilkers (2011 two farms). All sharemilker farms are milked on a 50/50

sharemilking agreement. Under the agreements, Landcorp provides land, buildings and dairy shares, and the sharemilker provides livestock and

incurs the farm operating expenses. Revenue is shared equally between Landcorp and the sharemilker.

Milk revenue decreased by $11.6 million (12%). This is due to a decrease in milk price offset by an increase in production. Overall milk production

was 7% higher than 2010/11.

Note 6 – Livestock (continued)



Note 8 – Wool Revenue


2012 2011 2012 2011

$000 $000 $000 $000

Revenue from wool sales 10,105 10,570 10,105 10,570

Profit on change of wool inventory 58 318 58 318

Total Wool Revenue 10,163 10,888 10,163 10,888

Wool is valued at estimated net market value at time of harvest. Wool revenue for 2011/12 is lower than 2010/11 due to a 7.4% decrease in

wool prices.

Note 9 – Forestry

A – NATURE OF ACTIVITIESLandcorp’s exotic forests are managed as an ancillary activity to farming. Land is allocated for forestry use when it is considered better suited to

forestry than for pastoral farming. Factors included in this decision include the viability of pastoral farming and land development activity, soil

types, local climate, erosion control and potential carbon sequestration.

Forests are considered economically viable where the forest stand is at least two hectares in size. Forests over 20 years of age are considered

harvestable, with prime harvest age around 25 years. The age of Landcorp’s forests are shown below:


2012 2011 2012 2011

Hectares Hectares Hectares Hectares

Forest age

Less than 10 years 3,074 2,569 2,539 1,994

10 – 15 years 608 466 529 400

15 – 20 years 987 834 955 83420 – 25 years 424 641 423 640

Greater than 25 years 551 588 539 576

Total Forest Area 5,644 5,098 4,985 4,444

The increase in afforestation is consistent with Landcorp’s strategy of optimising land use.

B – FORESTRY REVENUE

Landcorp’s forestry revenue comprised:


2012 2011 2012 2011

Note $000 $000 $000 $000

Forestry sale proceeds 2,520 3,319 2,520 3,319Book value of forestry sold/harvested (3,403) (953) (3,403) (953)

Profit from forestry sales (883) 2,366 (883) 2,366

Forest growth 882 2,745 911 2,720

Allocation of carbon credits 23 1,540 104 1,525 –

Afforestation grant scheme receipts 369 – 369 –

Total Forestry Revenue 1,908 5,215 1,922 5,086

The decrease in profit from forestry sales largely reflects a sudden drop in market prices.





C – VALUE OF FORESTS


2012 2011 2012 2011

$000 $000 $000 $000

Forest value at beginning of year 16,807 10,746 15,964 10,030

Costs capitalised to the forest crop 3,252 1,376 3,205 1,308

Value change due to:

Growth 882 2,745 911 2,720

Valuation change (1,313) 2,893 (1,321) 2,859

Book value of forest felled (3,403) (953) (3,403) (953)

Forest Value at End of Year 16,225 16,807 15,356 15,964

Forest valuations at 30 June 2012 were provided by P F Olsen Ltd. A before-tax market discount rate of 12% was used, based on the size of

Landcorp’s forest stands and market prices for timber sales.

Forests are classified as current if they are intended to be harvested within one year.


2012 2011 2012 2011

$000 $000 $000 $000

Current 2,700 1,400 2,700 1,400

Non-current 13,525 15,407 12,656 14,564

Forest Value at End of Year 16,225 16,807 15,356 15,964

Note 9 – Forestry (continued)



Note 10 – Equity Accounted Investments

The Group has the following interests in jointly controlled entities:

Balance Percentage held Joint Ventures Principal activity date 2012 2011

Wharewaka (2003) Ltd Property development 31 March 50% 50%

Wharewaka East Ltd Property development 31 March 50% 50%

Focus Genetics Ltd Partnership Development of genetically superior sires 30 June 50% –

Associates

Farm IQ Systems Ltd Research and development of an

integrated red meat value chain 30 June 18% –

Jointly controlled entities and associates are equity accounted as follows:


2012 2011 2012 2011 $000 $000 $000 $000

Investment in equity accounted investments comprises:

Investment at beginning of year 2,643 2,766 – –

Investment during the year 1,295 1,063

Equity accounted earnings 626 27 35 –

Less dividends received (832) (150) – –

Investment at End of Year 3,732 2,643 1,098 –

Balance sheet information for equity accounted investees:

Current assets 1,004 158 248 –

Non current assets 10,164 9,403 328 –

Current liabilities (1,053) – (484) –

Non current liabilities (7,389) (6,918) – –

Net assets 2,726 2,643 92 –

Equity accounted earnings comprises:

Income 3,426 125 1,015 –

Expenses (2,761) (75) (980) –

Surplus before tax 665 50 35 –

Income tax (39) (23) – –

Net surplus 626 27 35 –

Other gains and losses – – – –

Total Recognised Revenues and Expenses 626 27 35 –

The information provided by Farm IQ Systems Ltd reflects the eleven months to 31 May 2012.

There are no contingent liabilities relating to the Group’s interest in the joint ventures or associates, and no contingent liabilities of the ventures

or associates themselves.

Transactions with jointly controlled entities and associates

Landcorp received income of $693,743 for fees and other goods and services from Focus Genetics Ltd Partnership. The outstanding balance of

$72,435 is included in trade receivables. Landcorp paid $2,071,360 for fees to Focus Genetics Limited Partnership. The outstanding balance of

$194,880 is included in trade creditors.

Landcorp received income of $782,470 for fees and other goods and services from Farm IQ Systems Ltd. The outstanding balance at 30 June 2012

was $nil. During the year Landcorp also made contributions in kind of $121,597 to Farm IQ Systems Ltd.





Note 11 – Other Gains and Losses Group Group Parent Parent

2012 2011 2012 2011

Note $000 $000 $000 $000

Gain on sale of development land 658 723 – –

Loss on disposal of property, plant and equipment (165) (5) (150) (5)

Impairment loss on property, plant and equipment – (3,534) – (3,534)

Gain/(loss) on disposal of available-for-sale

financial instruments:

Revaluation gains previously recognised in equity 6 94 6 94

Gain/(loss) on disposal of held-for-trading

financial instruments 20 (721) 20 (721)

Reimbursement of protected land losses 33 57 294 57 294

Change in harvested feeds on hand 1,112 (402) 1,112 (402)

Other gains 3 – 19 –

Total Other Gains and Losses 1,691 (3,551) 1,064 (4,274)

The gain on sale of development land reflects profits from the sale of land through Landcorp Estates Ltd.

The reimbursement of Protected Land losses arises from the Crown’s obligation to reimburse Landcorp for losses arising from the management of

Protected Land, as discussed in Notes 4 and 33.

The $1.5 million increase in harvested feeds on hand reflects the increased quantity of harvested feed (hay, silage and baleage) at 30 June 2012 as

a result of favourable growing conditions.

Note 12 – Other Income Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Dividends received from third parties 57 59 57 59

Dividends received from subsidiaries – – 478 –

Rent received 769 709 710 648

Cropping and horticulture 109 177 109 177

Sundry income 1,946 1,613 3,152 1,612

Total Other Revenue 2,881 2,558 4,506 2,496



Note 13 – Farm Working Expenses Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Pasture maintenance 25,517 22,162 25,517 22,162

Shearing 5,329 4,723 5,329 4,723

Cropping and feed costs 31,260 28,290 31,260 28,290

Animal health 6,387 6,350 6,387 6,350

Animal breeding 1,674 2,412 1,674 2,412

Livestock and other freight 2,117 2,072 2,117 2,072

Grazing charges 3,235 3,459 3,235 3,459

Other farm working expenses 7,007 4,531 7,007 4,531

Total Farm Working Expenses 82,526 73,999 82,526 73,999

Pasture maintenance costs have increased by $3.4 million (15%). During the past few years Landcorp has experienced significant increases in the

cost of fertiliser and has managed its fertiliser application to focus on areas of highest need, resulting in lower fertiliser application. During the

current year the cost of fertiliser reduced resulting in Landcorp applying additional fertiliser than prior years.

Cropping and feed costs have increased by $3.0 million (10%) reflecting additional costs of harvesting feed as a result of the remarkably good

growing season.

Other farm working expenses in the current year include the genetics management fee paid to Focus Genetics Ltd Partnership.

Note 14 – Personnel Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Staff remuneration 42,356 41,509 42,356 41,395Contributions to defined contribution superannuation schemes 997 899 997 899

Restructuring and transfer costs 155 234 155 234

Staff training 864 812 864 812

Other 1,021 749 1,021 749

Total Personnel Costs 45,393 44,203 45,393 44,089





Note 15 – Depreciation and Amortisation Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Depreciation of Property, Plant and Equipment

Depreciation on buildings – freehold land 2,353 2,292 2,353 2,292

– leased land 376 375 376 375

– Protected Land 137 140 – –

Depreciation on plant 4,771 4,174 4,771 4,174

Depreciation on motor vehicles 4,006 3,914 4,006 3,914

Depreciation on furniture and equipment 534 563 534 563

Depreciation on computer equipment 300 388 300 388

Total Depreciation 12,477 11,846 12,340 11,706

Amortisation of Intangible Assets

Amortisation of computer software 636 615 636 615Amortisation of Intangible Assets 636 615 636 615

Amortisation of Land Development 167 – 167 –

Total Amortisation 803 615 803 615

Total Depreciation and Amortisation 13,280 12,461 13,143 12,321

The $0.6 million increase in depreciation on plant reflects increased asset ownership.

Note 16 – Maintenance Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Maintenance on land improvements 4,977 4,422 4,977 4,421

Maintenance on buildings 2,545 2,021 2,509 1,966

Maintenance on plant 1,725 1,281 1,725 1,281

Maintenance on motor vehicles 3,487 3,470 3,487 3,470

Maintenance on furniture and equipment 66 82 66 82

Maintenance on computer equipment 113 73 113 73

Total Maintenance 12,913 11,349 12,877 11,293

Most categories of maintenance increased in cost during the year. This was both a combination of increased maintenance costs as well as general

maintenance levels.



Note 17 – Other Operating Expenses Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Fees to auditors

– statutory audit 146 152 129 135

– non-audit-related services 14 – 14 –

Change in debtors impairment 18 (211) 18 (207)

Bad debts expense – 69 – 69

Directors’ remuneration 333 333 333 333

Donations and scholarships 130 109 130 109

Rent 4,966 4,613 7,606 7,213

Licence fees 1,178 1,619 1,178 1,619

Research and development 676 832 676 832

Fuel 3,019 2,611 3,019 2,611

Electricity 2,826 2,577 2,826 2,577Rates 4,223 3,838 4,102 3,716

Other 6,847 7,252 6,801 6,272

Total Other Operating Expenses 24,376 23,794 26,832 25,279

The prior year comparatives have been restated to reflect current year classifications.

The non-audit related services expense relates to the secondment to Landcorp of a junior accountant from Landcorp’s auditors during 2011/12.

The accountant is not a member of the audit team.

The licence fee expense represents the Crown’s net share of the milk revenue from the Sweetwater dairy complex. This complex was sold to the

Crown during 2009/10 and Landcorp continues to sharemilk the complex in an agreement with the Crown.

Increases in fuel (16%), electricity (10%) and rates (10%) reflect general price pressures experienced by Landcorp.

Note 18 – Net Finance Costs Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Interest on bank accounts and loans (7,269) (7,449) (7,269) (7,438)

Interest capitalised on construction of assets – 11 – –

Net cash flows from interest rate derivatives (2,976) (3,021) (2,976) (3,021)

Net interest expense (10,245) (10,459) (10,245) (10,459)

Interest received 7 55 1,337 1,991

Net Finance Costs (10,238) (10,404) (8,908) (8,468)

Net cashflows from interest rate derivatives are presented within net interest expense as all interest rate derivatives are held to economically

hedge Landcorp’s funding costs.





Note 19 – Accounts Receivable Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Trade debtors 3,783 4,436 3,735 4,412

Receivable from subsidiaries – – 257 245

Milk income receivable 11,582 17,748 11,582 17,748

Other receivables and prepayments 7,130 22,317 6,975 22,062

Total Accounts Receivable 22,495 44,501 22,549 44,467

See Note 31 (B) for the impairment of accounts receivable.

The decreased milk income receivable mainly reflects the lower milk price this season.

Other receivables and prepayments in 2011 included the outstanding balance for the sale of the Huka and Quarry blocks on Aratiatia Station

near Taupo.

Note 20 – Inventory

Inventory at the end of the year comprised: Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Agricultural produce:

Wool 534 215 534 215

Velvet 256 22 256 22

Harvested feeds 7,730 6,300 7,730 6,300

Consumables 1,575 3,122 1,575 3,122

Total Inventory 10,095 9,659 10,095 9,659

The $1.4 million increase in harvested feeds reflects the increased quantity on hand at 30 June 2012 as a result of favourable growing conditions.

Consumables have decreased by $1.5 million due to a decrease in purchased feed (reflecting increased harvested feeds).

Note 21 – Property Held for Sale

Property held for sale comprises: Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Development land 8,422 7,851 – –Farm land 72,006 16,482 54,103 –

Buildings 7,354 1,086 6,043 –

Total Property Held for Sale 87,782 25,419 60,146 –

The Parent’s property held for sale comprises farms that have been identified for sale during 2012/13.

Development land held for sale is land that is being developed by either jointly controlled entities (refer Note 10) or Landcorp Estates Ltd directly.

Land being developed directly by Landcorp Estates Ltd comprises developed residential sections that are currently being marketed.



Note 22 – Other Financial Assets and Liabilities Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Other Financial Assets

External Financial Assets

Available-for-sale financial assets

Share investments 48,936 45,180 48,936 45,180

Held-for-trading financial assets

Commodity derivatives 7 20 7 20

Internal Financial Assets

Shares in subsidiaries – – 137,757 130,795

Loans to subsidiaries – – 19,479 13,479

Total Other Financial Assets 48,943 45,200 206,179 189,474

Other Financial Liabilities

Financial liabilities measured at amortised cost

Bank loans 171,300 157,200 171,300 157,200

Held-for-trading financial liabilities

Interest rate derivatives 14,793 8,463 14,793 8,463

Financial guarantees

Financial guarantees – – – –

Total Other Financial Liabilities 186,093 165,663 186,093 165,663

Financial assets and liabilities are classified according to NZ IFRS criteria which may not reflect Landcorp’s intent for holding the assets

and/or liabilities.Landcorp’s external share investments are largely in cooperative and processing companies where shareholding is required to supply that

company and/or to facilitate normal farming operations. As such, the Group is normally unable to sell these investments and continue the

Group’s business operations.

Derivative financial instruments are used by the Group to hedge interest rate, foreign exchange and commodity risks. Landcorp has elected not to

use hedge accounting, which, under NZ IFRS, requires all derivative financial instruments to be classified as held-for-trading. Landcorp’s financial

management policies explicitly prohibit trading in financial instruments.

Financial risk management strategies relating to financial assets and liabilities are discussed in Note 31.

A – Revaluation of Financial Instruments Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Recognised in Profit and Loss

Revaluation of held-for-trading financial instruments (7,513) (2,012) (7,513) (2,012)

Total Recognised in Profit and Loss (7,513) (2,012) (7,513) (2,012)

Recognised directly in equity

Revaluation of available-for-sale financial instruments 144 518 144 518

Total Recognised Directly in Equity 144 518 144 518

Total Loss on Revaluation (7,369) (1,494) (7,369) (1,494)

B – Value of Financial Instruments

The valuation methods used to determine the fair values of those financial assets and liabilities that are measured at fair value in the statement

of financial position are shown below, classified according to the NZ IFRS fair value hierarchy.





Level 1 – Fair value determined by quoted prices (unadjusted) in active mar kets for identical assets or liabilities.

Share Investments

The majority of shares are valued using either quoted prices on a stock exchange or at prices set by cooperative companies that are based on

estimated fair value. A small portion of the share portfolio (less than 10%) are unlisted equities or cooperatives whose share prices are set by the

cooperative at a value other than estimated fair value. For these shares the fair value is estimated at the lower of the current cost to purchase

additional shares, or required sales values in the case of cooperative companies with restricted shareholding requirements.

Level 2 – Fair value based on inputs that are observed either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Interest Rate and Commodity Derivatives

The values of interest rate derivatives are based on estimated market values at balance date, given prevailing market interest rates and the terms

of the derivative instruments.

C – Current and Non-Current Financial Assets and Liabilities

Financial assets are classified as current if they are expected to be realised within one year. Share investments include shares in dairy cooperatives,

some of which require an annual adjustment in shares owned depending on production levels. This means that while the overall portfolio is not

expected to be realised in the short-term, minor sales of shares may be required once final production levels for the year ahead are known. Share

investments are therefore classified as non-current, unless specific sales of shares have been identified in the Business Plan.

Loans to subsidiaries may be repaid at any time by the subsidiary. These are only classified as current if a subsidiary’s Business Plan includes net

repayment of debt within one year.


2012 2011 2012 2011

$000 $000 $000 $000


Current

Held-for-trading financial assets

Commodity derivatives 7 20 7 20

Non-Current

External Financial Assets


Share investments 48,936 45,180 48,936 45,180

Internal Financial Assets

Shares in subsidiaries – – 137,757 130,795

Loans to subsidiaries – – 19,479 13,479

Total Other Financial Assets 48,943 45,200 206,179 189,474


Current


Bank loans – 107,200 – 107,200


Interest rate and commodity derivatives – 809 – 809

Non-Current


Bank loans 171,300 50,000 171,300 50,000


Interest rate derivatives 14,793 7,654 14,793 7,654

Total Other Financial Liabilities 186,093 165,663 186,093 165,663

Note 22 – Other Financial Assets and Liabilities (continued)



D – Bank Loans

Bank loans are the drawn components of bank cash advance facilities. The facilities may be borrowed against, or repaid, at any time by Landcorp.

The facilities are subject to a negative pledge agreement which means that Landcorp may not grant a security interest over its assets without the

consent of its lenders. Facilities are either on a daily floating interest rate or a short-term fixed rate.


2012 2011 2012 2011

$000 $000 $000 $000

Carrying value 171,300 157,200 171,300 157,200

Principal drawn 171,300 157,200 171,300 157,200

Fair value 171,300 157,200 171,300 157,200

Cash advance facilities have been drawn as follows:


2012 2011 2012 2011 $000 $000 $000 $000

Drawn 171,300 157,200 171,300 157,200

Undrawn 83,700 47,800 83,700 47,800

Total 255,000 205,000 255,000 205,000

Cash advance facilities are committed to:


2012 2011 2012 2011

$000 $000 $000 $000

0 – 6 months – 155,000 – 155,000

6 – 12 months – – – –One to two years 150,000 50,000 150,000 50,000

Two to five years 105,000 – 105,000 –

Greater than five years – – – –

Total 255,000 205,000 255,000 205,000

E – Financial Guarantees

The Parent is party to a bank account offset facility with other Group companies. This facility allows more efficient management of Group cash

balances and funding facilities. Under the facility individual company bank accounts are combined for interest payment calculations, and the bank

has the right to offset accounts in the event of default by any Group company. At a Group level the maximum combined total of all ‘overdraft’

accounts is $2 million (2011 $2 million).

The fair value of this financial guarantee is considered to be immaterial, as all Group companies are considered solvent and no payments are

expected to be made under the guarantee.

Note 22 – Other Financial Assets and Liabilities (continued)





Note 23 – Intangible Assets Group Group Parent Parent

2012 2011 2012 2011

Note $000 $000 $000 $000

Carbon Credits

Fair Value

Opening balance 702 777 598 777

Additions 1,540 104 1,525 –

Disposals – (184) – (184)

Revaluation (decrease)/increase (1,092) 5 (1,025) 5

Net Carrying Amount 1,150 702 1,098 598

Computer Software

Cost

Opening balance 2,993 2,841 2,993 2,841

Additions 153 152 153 152Disposals – – – –

Closing balance 3,146 2,993 3,146 2,993

Accumulated Amortisation

Opening balance (1,954) (1,339) (1,954) (1,339)

Amortisation 15 (636) (615) (636) (615)

Disposals – – – –

Closing balance (2,590) (1,954) (2,590) (1,954)

Net Carrying Amount 556 1,039 556 1,039

Total Intangible Assets 1,706 1,741 1,654 1,637

Landcorp’s intangible assets comprise carbon credits received under the Emissions Trading Scheme and farm management and finance informationsystems. Carbon credits are assumed to have an infinite life and are revalued at year end.

During 2011/12 Landcorp earned 108,688 New Zealand Units (NZUs) for sections of its post-1989 forests. In addition, Landcorp earned 22,402

NZUs from pre-1990 forests. During 2010/11 Landcorp earned 5,662 NZUs on post-1989 forests. In the event that these forest areas are

harvested, a liability equivalent to the decrease in carbon will be incurred.



Note 24 – Property, Plant & Equipment Group Group Parent Parent

2012 2011 2012 2011

Note $000 $000 $000 $000

Land and Improvements

Freehold land and buildings

Fair Value

Opening balance 1,040,597 976,091 1,040,597 976,091

Additions 27,860 44,585 27,860 44,585

Disposals (3,852) (7,758) (3,852) (7,758)

Reversal of depreciation on revaluation (2,003) (2,216) (2,003) (2,216)

Revaluation increase 13,562 17,695 13,562 17,695

Reclassified (to)/from property held for sale (60,146) 12,200 (60,146) 12,200

Closing balance 1,016,018 1,040,597 1,016,018 1,040,597

Accumulated DepreciationOpening balance – – – –

Depreciation 15 (2,353) (2,292) (2,353) (2,292)

Disposals 350 76 350 76

Reversal on revaluation 2,003 2,216 2,003 2,216

Closing balance – – – –

Net carrying amount 1,016,018 1,040,597 1,016,018 1,040,597

Buildings on leased land

Cost

Opening balance 22,367 22,291 22,367 –

Transfer from subsidiaries – – – 22,291

Additions 253 76 253 76

Disposals – – – –

Closing balance 22,620 22,367 22,620 22,367

Accumulated Depreciation and Impairment

Opening balance (4,538) (1,151) (4,538) –

Transfer from subsidiaries – – – (1,151)

Depreciation 15 (376) (375) (376) (375)

Amortisation 15 (167) – (167) –

Impairment – (3,012) – (3,012)

Closing balance (5,081) (4,538) (5,081) (4,538)

Net carrying amount 17,539 17,829 17,539 17,829

Total Land and Improvements 1,033,557 1,058,426 1,033,557 1,058,426

Protected Land and Improvements

Cost

Opening balance 118,233 117,805 – –

Additions 967 428 – –

Closing balance 119,200 118,233 – –

Accumulated Depreciation

Opening balance (467) (327) – –

Depreciation 15 (137) (140) – –

Closing balance (604) (467) – –

Net carrying amount 118,596 117,766 – –






2012 2011 2012 2011 Note $000 $000 $000 $000

Plant

Cost

Opening balance 49,534 45,945 49,534 36,863


Additions 6,237 4,446 6,237 4,446

Disposals (834) (857) (834) (857)

Closing balance 54,937 49,534 54,937 49,534


Opening balance (26,833) (22,877) (26,833) (20,305)


Depreciation 15 (4,771) (4,174) (4,771) (4,174)

Impairment – (373) – (373)

Disposals 700 591 700 591

Closing balance (30,904) (26,833) (30,904) (26,833)


Motor Vehicles

Cost

Opening balance 36,310 34,136 36,310 30,408


Additions 6,164 4,660 6,164 4,660

Disposals (5,050) (2,486) (5,050) (2,486)

Closing balance 37,424 36,310 37,424 36,310

Accumulated Depreciation and Impairment

Opening balance (20,753) (18,640) (20,753) (17,017)


Depreciation 15 (4,006) (3,914) (4,006) (3,914)

Impairment – (149) – (149)

Disposals 4,124 1,950 4,124 1,950

Closing balance (20,635) (20,753) (20,635) (20,753)


Furniture and Equipment

Cost

Opening balance 6,899 6,583 6,899 6,185Transfer from subsidiaries – – – 398

Additions 471 438 471 438

Disposals (66) (122) (66) (122)

Closing balance 7,304 6,899 7,304 6,899


Opening balance (4,766) (4,312) (4,766) (4,158)

Transfer from subsidiaries – – – (154)

Depreciation 15 (534) (563) (534) (563)

Disposals 60 109 60 109

Closing balance (5,240) (4,766) (5,240) (4,766)


Note 24 – Property, Plant & Equipment (continued)





2012 2011 2012 2011 Note $000 $000 $000 $000

Computer Equipment

Cost

Opening balance 2,323 5,212 2,323 4,901

Transfer from subsidiaries – – – 311

Additions 288 143 288 143

Disposals (29) (3,032) (29) (3,032)

Closing balance 2,582 2,323 2,582 2,323


Opening balance (1,829) (4,461) (1,829) (4,194)

Transfer from subsidiaries – – – (267)

Depreciation 15 (300) (388) (300) (388)

Disposals 28 3,020 28 3,020

Closing balance (2,101) (1,829) (2,101) (1,829)

Net carrying amount 481 494 481 494

Total Net Carrying Amount 1,195,520 1,217,077 1,076,924 1,099,311

Valuations of freehold land and buildings at 30 June 2012 were provided by Ian Bunt (FPINZ, FNZIV, MNZIPIM), Registered Valuer, Darroch Limited.

The valuations take into account general factors that influence farm land prices and recent farm sales in the relevant regions. Factors specific to

Landcorp that have been taken into account for valuations include the following factors:

• The effects of the Conservation Act 1987 relating to the establishment of marginal strips and conservation management plans

where applicable.

• The effects of the Treaty of Waitangi (State Enterprises) Act 1988 and the memorials pertaining to section 27B of the State Owned

Enterprises Act 1986, which provides for the resumption of land on recommendation of the Waitangi Tribunal. In the North Island many

section 27B memorials are in place and their effect has been considered resulting in deductions from unencumbered current market value

of 0-6%.

• South Island properties include a deduction of up to 5%, reflecting the effect of the Right of First Refusal memorial to Ngai Tahu registered

on the title of those properties.

All freehold land purchased from the Crown on commencement (1 April 1987) had a memorial placed on the title through the Treaty of Waitangi

(State Enterprises) Act 1988. That Act provides for full compensation to the owner of any such land that is the subject of a successful land claim.

Certain land not required for Treaty settlement has since had that memorial replaced with a statutory right of first refusal (in favour of Maori) on

future sale by Landcorp or another Crown body.

Property, plant and equipment under construction at balance date comprised:


2012 2011 2012 2011

$000 $000 $000 $000

Land development 162 – 162 –

Buildings on freehold land 1,738 715 1,738 715

Plant 367 116 367 116

2,267 831 2,267 831





Had the Group’s freehold land and buildings (other than land and buildings classified as held for sale or included in a disposal group) and

Protected Land been measured on a historical cost basis, their carrying amount would have been as follows:


2012 2011 2012 2011

$000 $000 $000 $000

Freehold land 398,894 378,127 398,894 378,127

Buildings on freehold land 50,997 52,842 50,997 52,842

Total land and buildings at historical cost 449,891 430,969 449,891 430,969

Note 25 – Accounts Payable and Accruals Group Group Parent Parent

2012 2011 2012 2011 $000 $000 $000 $000

Trade creditors 9,797 9,367 9,715 9,090

Payable to subsidiaries – – 4,944 4,922

Other land sales deposits received 579 414 498 128

Other payables and accruals 8,131 9,810 7,927 9,757

Total Accounts Payable and Accruals 18,507 19,591 23,084 23,897

From 1 April 2012 Landcorp became part of the ACC Partnership Programme and has taken on the responsibility of providing full work injury

support to an injured employee. An estimate of the liability has been included in other payables and accruals. This has not been actuarially valued

this year as Landcorp has only recently entered the programme and the liability is not material.

Note 26 – Redeemable Preference Shares

Redeemable preference shares are issued under the terms of the Protected Land Agreement (the “PLA”), signed with the Crown in 2007. They carry

no voting rights and are not eligible for dividends or any share of net assets on wind-up.

Under the PLA certain properties that Landcorp had wished to sell were transferred to subsidiary company Landcorp Holdings Ltd where they are

managed by Landcorp. The Crown invested additional capital in Landcorp through the purchase of redeemable preference shares of an equivalent

value to the protected properties. This capital was paid through a combination of cash and dividend reinvestment, with the final amount paid

through the reinvestment of part of the 2009/10 final dividend in October 2010.

As part of the PLA, Landcorp was prevented from selling any other properties until September 2011, except for some specifically

exempted or those under contract at the time of the PLA. This provision, with minor exemptions, was extended to 31 March 2012

and subsequently lapsed.

When requested, Landcorp will transfer protected properties to the shareholder with an agreed value of redeemable preference shares beingredeemed. As the redeemable preference shares are redeemable on demand by the share owner, under NZ IFRS, they are required to be reported

as a liability. Landcorp considers these as part of its equity, as shown in Note 27.


2012 2011 2012 2011

$000 $000 $000 $000

Value at start of period 117,755 100,408 117,755 100,408

Issued during period – 17,347 – 17,347

Value at End of Period 117,755 117,755 117,755 117,755




Note 27 – Capital Management

The Group considers its capital as comprising all the components of Shareholders’ Equity and Redeemable Preference Shares (classified under

NZ IFRS as a liability), as follows: Group Group Parent Parent

2012 2011 2012 2011

Comment $000 $000 $000 $000

Share capital A 125,000 125,000 125,000 125,000

Retained earnings B 124,204 123,256 248,216 247,969

Revenue reserves C 104,558 142,420 103,688 141,550

Fair value reserve D 1,813 1,714 4,145 4,046

Asset revaluation reserves E 746,982 730,038 632,262 617,199

Other equity F 229,412 229,199 220,249 217,840

Total Shareholders’ Funds 1,331,969 1,351,627 1,333,560 1,353,604

Redeemable preference shares G 117,755 117,755 117,755 117,755

Total Managed Capital 1,449,724 1,469,382 1,451,315 1,471,359

Under the State-Owned Enterprises Act 1986, Landcorp’s ordinary shares may only be owned by the Ministers of Finance and State-Owned

Enterprises. This prevents Landcorp from raising equity capital from other sources.

Landcorp manages its capital such that a debt to equity level is maintained so that banking covenants and fiduciary responsibility are met.

Landcorp’s target for dividend payments is to pay up to 75% of net operating profit (after tax) subject to ensuring that debt levels will be

maintained at a level that ensures Landcorp meets all fiduciary and legal requirements including banking covenants.

COMPONENTS OF CAPITAL

A – Share Capital

The Parent’s shareholding is held equally by the Minister of Finance and the Minister for State-Owned Enterprises in terms of the State-Owned

Enterprises Act 1986. Ordinary shares carry one vote per share and carry the right to participate in dividends.

All shares are fully paid up. Share capital comprises: Parent Parent

2012 2011

000 shares 000 shares

Ordinary shares 125,000 125,000

B – Retained Earnings

Retained earnings comprises Landcorp’s accumulated net profits (excluding profits from the revaluations of livestock and financial assets) less

dividends paid. By excluding these price revaluations, and the components of other equity (refer comment F), retained earnings is an approximate

measure of the accumulated cash profits retained by Landcorp.

C – Revenue Reserves

Landcorp has chosen to classify the net revaluations of livestock (biological assets revaluation reserve) and derivatives (financial assets revaluation

reserve) separately from retained earnings. Under NZ IFRS the revaluations on these assets are required to be reported in the Statement ofComprehensive Income and, as a component of net profit after tax, initially form part of retained earnings. However, these revaluations do not

represent cash flows and, especially in the case of livestock, cannot be realised in the ordinary course of livestock farming.

D – Fair Value Reserve

The fair value reserve comprises the cumulative net change in the fair value of available-for-sale financial assets, until the investment is

derecognised.

E – Asset Revaluation Reserves

The asset revaluation reserves are used to record changes in the fair value of individual land and buildings and intangible assets.

F – Other Equity

Other equity represents transfers from assets revaluation reserves of asset revaluations, when the associated asset is sold. Given that most of

Landcorp’s property sales reflect changes in the composition of land holdings, rather than reductions, these transfers are not usually realised on a

portfolio basis. Hence, other equity is not a cashflow realised for distribution and can be considered a form of asset revaluation reserve.

G – Redeemable Preference Shares

Redeemable preference shares are used as a capital injection to compensate Landcorp for the land protected from sale under the PLA as described

in Note 26.





Note 28 – Dividends Parent Parent Parent Parent

2012 2011 2012 2011

Cents per share $000 $000

Ordinary shares

Interim dividend – – – –

Final dividend 22.0 14.4 27,500 18,000

Total Dividends for Year 22.0 14.4 27,500 18,000

A final dividend for 2012 of $20 million was declared in August 2012 (2011 $27.5 million). This dividend will be imputed to the value of

$1 million.

Redeemable preference shares are not eligible to participate in dividend payments.

Note 29 – Income Tax

A – INCOME TAX EXPENSE

Tax (income) expense recognised for the year was:


2012 2011 2012 2011

$000 $000 $000 $000

Current tax expense (credit)

Current tax expense (credit) for year 542 (9,423) 507 (9,377)

Adjustments to prior year 855 5,691 872 5,544

Effect on recognised tax losses due to change in income tax rate – 627 – 625

1,397 (3,105) 1,379 (3,208)

Deferred tax (credit) expense

Temporary differences (9,667) 15,886 (9,655) 16,174

Adjustments to prior year (42) – – –

Effect on deferred tax balances due to change in income tax rate – 8 – –

(9,709) 15,894 (9,655) 16,174

Total Income Tax (Credit) Expense (8,312) 12,789 (8,276) 12,966

The prima facie income tax (credit) expense on accounting profit reconciles to the recognised tax (credit) expense as follows:


2012 2011 2012 2011

$000 $000 $000 $000

Profit before tax (17,726) 127,381 (18,391) 127,163Income tax (credit) expense calculated at 28% (2011 30%) (4,963) 38,214 (5,149) 38,149

Prior year current tax adjustments 813 5,691 872 5,544

Increase/(decrease) in income tax expense due to:

Non-deductible expenses 139 (1) 139 –

Donations – 33 – 33

Other 5,965 3,890 5,879 3,890

Decrease in income tax expense due to:

Land development expenditure (4,155) (17,765) (4,155) (17,765)

Livestock (2,806) (4,918) (2,806) (4,918)

Non assessable income (550) 55 (534) 92

Other (2,755) (13,037) (2,522) (12,684)

Effect on tax balances due to change in income tax rate – 627 – 625

Total Income Tax (Credit) Expense (8,312) 12,789 (8,276) 12,966



B – DEFERRED INCOME TAX RECOGNISED DIRECTLY IN EQUITY AND OTHER COMPREHENSIVE INCOME

The following deferred amounts were charged/(credited) directly to equity during the period:


2012 2011 2012 2011

$000 $000 $000 $000

Property, plant and equipment

Property revaluations 629 1,832 629 1,832


Revaluations of available-for-sale financial assets 39 119 39 119

Total Deferred Income Tax Recognised Directly In Equity and

Other Comprehensive Income 668 1,951 668 1,951

C – DEFERRED TAX BALANCES

Deferred tax balances at balance date were:


2012 2011 2012 2011

$000 $000 $000 $000

Deferred tax asset

Temporary differences 6,187 5,209 6,156 5,099

Tax losses recognised 53,343 55,177 49,229 51,235

59,530 60,386 55,385 56,334

Deferred tax liability

Temporary differences (49,501) (57,999) (47,827) (56,384)

(49,501) (57,999) (47,827) (56,384)

Net deferred tax asset (liability) 10,029 2,387 7,558 (50)

Current tax asset (liability) – – – –

Net Tax Asset (Liability) 10,029 2,387 7,558 (50)

The availability of the tax losses recognised is subject to the requirements of the income tax legislation being met.

Note 29 – Income Tax (continued)





Taxable and deductible temporary differences arise from the following:

Balance Sheet Tax (Credit)/Expense

Group Group Group Group

2012 2011 2012 2011

$000 $000 $000 $000

Group

Deferred tax assets

Trade and other receivables 6 1 (5) 58

Biological assets 31 110 (9) (8)

Property, plant and equipment – 652 784 (560)

Fair-value-through-profit-and-loss financial assets 4,140 2,364 (1,776) 625

Tax bases without a liability carrying amount 4 6 2 8

Trade and other payables 17 82 65 1,179

Provisions 1,989 1,994 5 (74)

6,187 5,209 (934) 1,228

Deferred tax liabilities

Trade and other receivables 1,434 1,424 (140) (1,261)

Biological assets 29,842 39,179 (9,363) 21,776

Available-for-sale financial assets 705 666 – –

Property, plant and equipment 17,520 16,700 698 (5,819)

Intangible assets – 30 30 (30)

49,501 57,999 (8,775) 14,666

Deferred Tax (Credit) Expense (9,709) 15,894

Balance Sheet Tax (Credit)/Expense

Parent Parent Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Parent

Deferred tax assets

Trade and other receivables 6 1 (5) 58

Biological assets – – – 461

Property, plant and equipment – 652 652 (560)

Fair-value-through-profit-and-loss financial assets 4,140 2,364 (1,776) 625

Tax bases without a liability carrying amount 4 6 2 8

Trade and other payables 17 82 65 1,179

Provisions 1,989 1,994 5 (74)

6,156 5,099 (1,057) 1,697

Deferred tax liabilities

Trade and other receivables 16 82 (66) (1,179)

Biological assets 29,628 38,978 (9,350) 21,795

Available-for-sale financial assets 705 666 – –

Property, plant and equipment 17,478 16,658 818 (6,139)

47,827 56,384 (8,598) 14,477

Deferred Tax (Credit) Expense (9,655) 16,174




D – IMPUTATION CREDIT ACCOUNT BALANCES

Parent Parent

2012 2011

$000 $000

Balance at beginning of the period 3,849 3,822

Adjustment to prior year balances (33) –

Attached to dividends paid (2,500) –

Attached to dividends received 24 27

RWT refunded (7) –

Parent company balance at end of year 1,333 3,849

Available through indirect interests in subsidiaries – –

Imputation Credits Available Directly and Indirectly to Shareholders of the Parent Company 1,333 3,849

Note 30 – Reconciliation of Profit and Operating Cash Flow Group Group Parent Parent

2012 2011 2012 2011

Note $000 $000 $000 $000

Net profit after tax (9,414) 114,592 (10,115) 114,197

Non cash items

Depreciation and amortisation 15 13,280 12,461 13,143 12,321

Non-cash livestock income 943 (9,694) 943 (9,694)

Forest growth 9 (882) (2,745) (911) (2,720)

Allocation of carbon credits (1,540) (104) (1,525) –

Dividends received from equity accounted joint ventures 10 832 150 – –

Non-cash movement in equity accounted investments 10 (626) (27) (35) –

(Loss)/gain due to price changes on livestock 30,349 (75,640) 30,349 (75,640)

(Loss)/gain due to price changes on forests 1,313 (2,893) 1,321 (2,859)

Loss due to price changes on financial instruments 7,513 2,012 7,513 2,012

Loss on revaluation of property, plant and equipment 5,564 1,691 5,564 1,691

(Gain)/loss due to price changes on intangible assets 1,092 (5) 1,025 (5)

Change in deferred tax asset/liability (7,642) 14,740 (7,558) 11,778

Deferred tax on revaluation of assets (668) (1,951) (668) (1,045)

Movement in working capital items

Inventories (436) 1,259 (436) 105

Accounts receivable 22,006 (16,333) 21,918 (19,688)

Accounts payable and accruals (1,084) 3,127 (813) 3,868

Employee entitlements 223 508 223 986

Items classified as investing or financing activities

Net loss/(gain) on movement of assets 3,523 (5,194) 3,640 (5,190)

Change in balances due to subsidiary amalgamation – – – 5,829

Change in accounts receivable due to capital items (16,276) 15,307 (16,498) 15,364

Change in accounts payable due to capital items 3,057 582 3,031 536

Net Cash Flows from Operating Activities 51,127 51,843 50,111 51,846






Note 31 – Risk Management

The Group is exposed to various risks arising in the ordinary course of business. The Board of Directors authorises the use of financial instruments

under approved policy guidelines to manage financial risks. A Treasury Management Committee comprising the executive management team andan independent treasury advisor meet on a monthly basis to co-ordinate and oversee the operation of the treasury function. Details of these risks

and risk management policies are explained below:

A – Risks due to Agricultural Activities

The Group is exposed to many risks relating to agricultural activities:

Environmental and climatic risks

Like all farmers, Landcorp is exposed to climatic and other environmental risks. Landcorp’s geographic spread of farms usually allows a high

degree of mitigation against adverse climatic (e.g. drought or flooding) and environmental (e.g. disease outbreaks) effects at a regional level.

When adverse climatic events occur livestock is initially accommodated where possible on other Landcorp properties.

The geographic spread of Landcorp’s forestry assets also provides a high degree of risk mitigation against risks associated with forestry, such as

fire and disease.

Landcorp has strong environmental policies and procedures aimed at supporting the business while ensuring compliance with environmental

and other laws. Environmental policies are designed to be compliant with laws in target export markets in addition to New Zealand’s

legislative requirements.

Commodity price risk

Landcorp is exposed to risks arising from fluctuations in the price and sales volume of livestock and forestry. Where possible, Landcorp enters

into supply contracts for livestock to ensure sales volumes can be met by processing companies. Landcorp uses oil-price derivatives to hedge

price movements on approximately 50% of its petrol and diesel usage. Other than this, Landcorp is unable to use financial instruments to hedge

commodity price risk, due to a lack of effective hedging markets.

Landcorp has diversified its main sources of livestock revenue across four main product streams – sheep meat, beef, venison and milk – which

provide lower levels of exposure to prices of any one commodity.

Financing risk The nature of livestock farming means that most of Landcorp’s revenue is received in the second half of the financial year, whereas expenses are

incurred throughout the year. Landcorp manages this financing risk through budgeting and actively managing working capital requirements, as well

as maintaining credit facilities at levels sufficient to meet working capital requirements, as described in Note 22 (d).

B – Credit Risk

Credit risk is the risk of loss arising from a counterparty to a contract failing to discharge its obligations. In the normal course of its business,

Landcorp incurs credit risk from trade receivables and transactions with financial institutions. Landcorp has a credit policy, which is used to

manage this exposure to credit risk. As part of this policy, credit evaluations are performed on all customers requiring credit over a certain amount.

Limits on exposures are set and monitored on a regular basis. As at 30 June 2012 Landcorp did not have any significant concentrations of credit

risk except for milk customers. Landcorp’s maximum credit exposure is shown below. Landcorp does not expect the non-performance of any

obligations at balance date beyond those estimated as impaired.


2012 2011 2012 2011 Note $000 $000 $000 $000

Cash balances 564 454 1,700 11,709

Accounts receivable 19 22,495 44,501 22,549 44,467

Other financial assets 22 48,943 45,200 206,179 189,474

Maximum Credit Exposure 72,002 90,155 230,428 245,650



The status of accounts receivable at balance date was:


2012 2011 2012 2011

$000 $000 $000 $000

Not yet due 22,331 44,143 22,385 44,109

Past due – up to 30 days 106 262 106 262

Past due – 31 to 60 days 23 64 23 64

Past due – 61 to 90 days 2 14 2 14

Past due – more than 90 days 33 18 33 18


Accounts receivable are estimated to be impaired as follows:

Group Group Parent Parent 2012 2011 2012 2011

$000 $000 $000 $000

Gross accounts receivable 22,515 44,503 22,569 44,469

Individual impairment (20) (2) (20) (2)


C – Liquidity Risk

Liquidity risk is the risk that an entity will encounter difficulty in raising funds at short notice to meet financial commitments. The Group has

liquidity headroom available through term borrowing arrangements and specific funding for seasonal fluctuations (see Note 22 (d)).

Every year the Group prepares a three-year Business Plan, which includes a forecast of funding requirements. The Treasury Management

Committee reviews the required funding and assesses the appropriate level and term structure of funding facilities. Intra-year, Landcorp’s policies

require that committed funding facilities are greater than current quarter peak-funding requirements.

Note 31 – Risk Management (continued)





The table below analyses the Group’s financial liabilities by period of contractual maturity. Parent numbers are not presented as they are not

materially different from Group. Total amounts do not match to the Statement of Financial Position as contractual flows are the absolute

undiscounted amount of future cashflows, including forecast interest expense on interest-bearing liabilities.

2012 0 – 6 6 – 12 One to Two to Greater than No fixed

Total months months two years five years five years maturity

Note $000 $000 $000 $000 $000 $000 $000

Group 2012

Liabilities

Land sales deposits 25 579 – – – – – 579

Other accounts payable and accruals 25 17,928 17,928 – – – – –

Employee entitlements 8,560 4,393 – – – – 4,167

Other financial liabilities 22

Bank loans 183,099 3,459 3,459 132,921 43,260 – –

Interest rate derivatives 14,793 – – 779 945 13,069 –Redeemable preference shares 26 117,755 – – – – – 117,755

Total Contractual Maturity 342,714 25,780 3,459 133,700 44,205 13,069 122,501

2011 0 – 6 6 – 12 One to Two to Greater than No fixed

Total months months two years five years five years maturity

Note $000 $000 $000 $000 $000 $000 $000

Group 2011

Liabilities

Land sales deposits 25 414 – – – – – 414

Other accounts payable and accruals 25 19,177 19,177 – – – – –

Employee entitlements 8,337 4,173 – – – – 4,164

Other financial liabilities 22

Bank loans 162,328 110,303 1,313 50,712 – – –

Interest rate derivatives 8,463 1,398 1,398 3,406 2,346 (85) –

Redeemable preference shares 26 117,755 – – – – – 117,755

Total Contractual Maturity 316,474 135,051 2,711 54,118 2,346 (85) 122,333

Land sales deposits are the receipt of deposit monies for land sales that have not yet been recognised. Landcorp will only need to settle these

liabilities in cash if the sales contracts are cancelled.

Redeemable preference shares arise from the PLA (refer Note 26). These shares are likely to be redeemed by the transfer of protected land to the

redeemable preference shareholder (the New Zealand Government).

D – Foreign Currency Risk

Foreign currency risk is the risk that Landcorp’s sales revenue will be impacted by fluctuations in foreign exchange rates. Landcorp is exposed toindirect foreign currency risk through the sale of products by processing companies to overseas markets. Landcorp has a foreign currency policy

designed to limit the negative impact of exchange rate movements on revenue. Foreign currency risk is quantified and managed and the policy is

to fix, either directly or indirectly, a minimum of 20 percent of sales revenue to mitigate the level of foreign currency risk. Sales revenue is fixed

indirectly through the hedging activities of processing companies (such as milk processors) and sales contracts fixed in New Zealand dollars. Sales

revenue is fixed directly with foreign currency derivatives, such as forward foreign exchange contracts and foreign currency options. At 30 June

2012, approximately 63% of 2012/13 revenue (2011 53%) was estimated to be fixed indirectly through the hedging activities of processing

companies. No direct foreign currency hedging was in place at 30 June 2012 (2011 none).




E – Interest Rate Risk

Interest rate risk is the risk of loss arising from changes in interest rates. Landcorp is exposed to interest rate risk on borrowings used to fund

investment and ongoing operations. Landcorp has an interest rate risk management policy designed to identify and manage interest rate risk

to ensure funding is obtained in a cost effective manner, to minimise the cost of borrowing and to provide greater certainty of funding costs.

Management monitors the level of interest rates on an ongoing basis, and from time-to-time, will fix the rates of interest payable using derivative

financial instruments. Forward rate agreements, interest rate swaps and interest rate options may be used for risk management purposes. Assets

and liabilities will mature or re-price within the periods shown in the table below. Parent numbers are not presented as they are not materially

different from Group, except for shares in subsidiaries, which are not interest rate sensitive, and loans to subsidiaries, which are at daily floating

interest rates (refer Note 22 (d)).

Re-pricing Analysis 2012 Non-interest 0 – 6 6 – 12 One to Two to Greater than

Effective Total sensitive months months two years five years five years

interest rate $000 $000 $000 $000 $000 $000 $000

Group 2012

AssetsCash and Cash Equivalents 2.00% 564 – 564 – – – –

Accounts Receivable 22,495 22,495 – – – – –

Inventories 10,095 10,095 – – – – –

Property Held for Sale 87,782 87,782 – – – – –

Biological Assets

Livestock 265,793 265,793 – – – – –

Forests 16,225 16,225 – – – – –

Equity Accounted Investments 3,732 3,732 – – – – –

Deferred Tax Asset 10,029 10,029 – – – – –


Share investments 48,936 48,936 – – – – –

Commodity derivatives 7 7 – – – – –

Intangible Assets 1,706 1,706 – – – – –

Property, Plant and Equipment 1,195,520 1,195,520 – – – – –

Liabilities

Accounts Payable and Accruals (18,507) (18,507) – – – – –

Employee Entitlements 2.43% (8,560) (8,560) – – – – –


Bank loans 3.28% (171,300) – (171,300) – – – –

Interest rate derivatives (14,793) – 72,959 9,988 (15,535) 7,795 (90,000)

Redeemable Preference Shares (117,755) (117,755) – – – – –

Shareholders’ Funds (1,331,969) (1,331,969) – – – – –

Re-pricing Profile – 185,529 (97,777) 9,988 (15,535) 7,795 (90,000)

The interest rate on term borrowing as amended by off balance sheet financial instruments was 5.38% per cent.






Re-pricing Analysis 2011 Non-interest 0 – 6 6 – 12 One to Two to Greater than

Effective Total sensitive months months two years five years five years interest rate $000 $000 $000 $000 $000 $000 $000

Group 2011

Assets

Cash and Cash Equivalents 2.00% 454 – 454 – – – –

Accounts Receivable 44,501 44,501 – – – – –

Inventories 9,659 9,659 – – – – –

Property Held for Sale 25,419 25,419 – – – – –

Biological Assets

Livestock 297,085 297,085 – – – – –

Forests 16,807 16,807 – – – – –

Equity Accounted Investments 2,643 2,643 – – – – –

Deferred Tax Asset 2,387 2,387 – – – – –Other Financial Assets

Share investments 45,180 45,180 – – – – –

Commodity derivatives 20 20 – – – – –

Intangible Assets 1,741 1,741 – – – – –

Property, Plant and Equipment 1,217,077 1,217,077 – – – – –

Liabilities

Accounts Payable and Accruals (19,591) (19,591) – – – – –

Employee Entitlements 6.47% (8,337) (7,784) (553) – – – –


Bank loans 3.32% (157,200) – (157,200) – – – –

Interest rate derivatives (8,463) – 109,903 – (617) (17,749) (100,000)

Redeemable Preference Shares (117,755) (117,755) – – – – –

Shareholders’ Funds (1,351,627) (1,351,627) – – – – –

Re-pricing Profile – 165,762 (47,396) – (617) (17,749) (100,000)

The interest rate on term borrowing as amended by off balance sheet financial instruments was 6.08% per cent.




F – Sensitivity Analysis

For the 2012 year, it is estimated that the following movements in risk factors would have resulted in the following effects on net profit before

tax. The effects are all estimated after the effect of any hedging instruments used in the year, but do not include any potential price changes in

financial instruments, market values of livestock, or commodity prices for milk at balance date.

The sensitivity analysis is based on exposures arising over the 2011/12 year, rather than exposures at balance date, as Landcorp’s operations are

highly seasonal and the effect of risk exposures and hedging instruments at balance date do not reflect those experienced during the year.


2012 2011 2012 2011

$000 $000 $000 $000

Interest rate risk

Net finance costs would have changed by:

OCR higher/lower by 1% (603) / +603 (525) / +525 (603) / +603 (525) / +525

Foreign currency riskRevenue would have changed by:

NZD 1% higher/lower against USD (704) / +718 (654) / +668 (704) / +718 (654) / +668

NZD 1% higher/lower against EUR (473) / +483 (401) / +409 (473) / +483 (401) / +409

NZD 1% higher/lower against GBP (189) / +192 (157) / +161 (189) / +192 (157) / +161

NZD 1% higher/lower against all currencies (1,366) / +1,393 (1,213) / +1,238 (1,366) / +1,393 (1,213) / +1,238

Commodity price risk

Revenue would have changed by:

1% increase/decrease in all commodity prices (1,379) / +1,379 +1,462 / (1,462) (1,379) / +1,379 +1,462 / (1,462)

Note 32 – Related Parties

Ultimate Controlling Party

The ultimate controlling party of Landcorp is the New Zealand Government.

Key Management Personnel Compensation

Key management personnel comprise directors and executive management personnel who have responsibility for planning, d irecting and

controlling the activities of Landcorp.

Key management personnel compensation comprised:

Group Group

2012 2011

$000 $000

Short-term employee benefits 2,565 2,304

Post-employment benefits 97 97

2,662 2,401

Short term employee benefits include salary, Directors remuneration, medical and life insurance and the cost of any other fringe benefits incurred

during the year as well as any accrued performance payments due within one year.

Post-employment benefits are contributions to defined contribution superannuation schemes, including employer KiwiSaver contributions.






Other Related Party Transactions

The Group undertakes many transactions with other Crown owned entities which are carried out on an arms length basis and in the normal

course of business, as are all transactions within the Group.

There were no material transactions with the Crown during 2012 or 2011.

Landcorp Farming Ltd holds shares in a number of cooperative suppliers and customers. These shareholdings are required to enable the Group to

transact business with them. All transactions with these entities are on an arms length basis.

No related party debts were written off during the year, and other than loans to subsidiaries, amounts owing at balance date were not material

to the Group.

Transactions with jointly controlled entities are described in Note 10 – Equity Accounted Investments.

Transactions with subsidiary companies are described in Note 35 – Subsidiary Companies.

Transactions between the Group and entities in which Directors were associated, were undertaken at arms length. A list of entities in which

the Directors have an interest are listed in the section entitled “Disclosures in Terms of the Companies Act 1993” in the Annual Report (see

pages 89 to 91).

Note 33 – Contingent Assets and Liabilities

At 30 June 2012 Landcorp had the following contingent assets and liabilities:

(a) The Emissions Trading Scheme (ETS) was passed into law in late-2009. As a pastoral farmer and forester, Landcorp has directly gained

emission credits (“New Zealand Units” or “NZUs”) and will incur liabilities through the ETS. Landcorp is in the process of applying for credits

on pre-1990 forestry plantations. These are estimated to be around 136,000 NZUs. In the event that pre-1990 forests are deforested, a

deforestation liability would be incurred. During 2012 22,402 NZUs were allocated to Landcorp.

Landcorp can claim credits on its post-1989 forest carbon sequestration. During 2011/12 Landcorp received 108,688 NZUs for post-1989

forest carbon sequestration. Landcorp is expecting to receive additional NZUs for areas currently in the process of registration and foradditional carbon sequestration on areas already registered. Should these plantations be harvested and/or deforested, a liability would be

incurred up to a maximum of the credits received.

(b) Under the PLA (refer Note 26), any accumulated gains (losses) on the protected property will be paid to the Crown (reimbursed by the

Crown) when that property is transferred to Crown ownership. During 2009/10 the Crown signed an Agreement in principle to settle a

Treaty of Waitangi claim. This Agreement in principle included the transfer of three Landcorp properties to Iwi, which were purchased from

Landcorp Farming by the Crown during the year and one property held by Landcorp Holdings Ltd under the PLA. Landcorp has recognised

the reimbursement receivable to date from the Crown for the affected protected property (refer Note 11). The reimbursement for losses

incurred on the other protected properties has not been recognised by Landcorp. At 30 June 2012, this unrecognised reimbursement totalled

$4.1 million (2011 $5.0 million).

Note 32 – Related Parties (continued)



Note 34 – Commitments Group Group Parent Parent

2012 2011 2012 2011

$000 $000 $000 $000

Contracted capital commitments 2,546 1,749 780 1,198

Operating lease commitments:

Within one year 4,699 4,409 4,699 4,409

One to two years 4,360 4,604 4,360 4,604

Two to five years 10,440 12,782 10,440 12,782

Later than five years 102,817 110,241 102,817 110,241

Operating lease commitments relate to the lease of farmland.

Landcorp has entered into an agreement with Shanghai Pengxin Group (SPG) to manage 16 farms that SPG is in the process of acquiring. If this

agreement proceeds, Landcorp will have a commitment to acquire cows valued at around $26.7 million and plant and equipment valued at

$4.8 million over the next two years.

Note 35 – Subsidiary Companies Balance Percentage held

Subsidiaries Principal activity date 2012 2011

Landcorp Estates Ltd Property development 30 June 100% 100%

Landcorp Pastoral Ltd Limited Partner in genetics joint venture 30 June 100% 100%

Landcorp Holdings Ltd Holding Protected Land 30 June 100% 100%

Transactions with subsidiary companies:

During the year Landcorp Farming Ltd provided management and support services to its subsidiaries at a cost of $1.2 million (2011 $0.9 million).

All inter-group transactions are undertaken upon an arms length commercial basis. At 30 June 2012, Landcorp Farming Ltd’s accounts receivable

balance included $0.3 million (2011 $0.2 million) owing from subsidiary companies and accounts payable had $4.9 million (2011 $4.9 million)

owing to subsidiary companies. The accounts payable balance includes the pass-through of the Crown’s reimbursement of Protected Land losses

through Landcorp Farming Ltd to Landcorp Holdings Ltd.

Loans to subsidiaries at 30 June 2012 are mainly for the purchase of capital assets and working capital.

The balance of loans at 30 June 2012 was $19.5 million (2011 $13.5 million) and is subject to interest charged at market rates. Total interest

paid by subsidiaries to Landcorp Farming Ltd during the year amounted to $1.3 million (2011 $2.0 million).

No subsidiary company debts were written off during the year.

During the year Landcorp Pastoral Ltd paid a $0.5 million dividend to Landcorp Farming Ltd.

During the year Landcorp Estates purchased land and buildings valued from Landcorp Farming Ltd at $2.7 million (2011: $nil).




Independent Auditor’s Report

TO THE READERS OF LANDCORP FARMING LIMITED AND GROUP’SFINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

The Auditor-General is the auditor of Landcorp Farming Limited (the “Company”) and Group. The Auditor-General has appointed me, Trevor Deed, using the staff

and resources of Deloitte, to carry out the audit of the financial statements of the company and group, on her behalf.We have audited the financial statements of the company and group on pages 41 to 87, that comprise the Statement of Comprehensive Income, Statement ofMovements in Equity and Statement of Cash Flows and the Statement of Financial Position as at 30 June 2012 for the year ended on that date and the notesto the financial statements that include accounting policies and other explanatory information.

Opinion on the financial statementsIn our opinion the financial statements of the Company and Group on pages 41 to 87:

– comply with generally accepted accounting practice in New Zealand;

– comply with International Financial Reporting Standards; and

– give a true and fair view of the Company and Group’s:

– financial position as at 30 June 2012; and

– financial performance and cash flows for the year ended on that date.

Opinion on other legal requirementsIn accordance with the Financial Reporting Act 1993 we report that, in our opinion, proper accounting records have been kept by the company and group as faras appears from an examination of those records.

Our audit was completed on 27 August 2012. This is the date at which our opinion is expressed.

The basis of our opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and our responsibilities, and explain our independence.Basis of opinionWe carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Thosestandards require that we comply with ethical requirements and plan and carry out our audit to obtain reasonable assurance about whether the financial statements arefree from material misstatement.

Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’s overall understanding of the financial statements. If we hadfound material misstatements that were not corrected, we would have referred to them in our opinion.

An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend onour judgement, including our assessment of risks of material misstatement of the financial statements whether due to fraud or error. In making those risk assessments;we consider internal control relevant to the preparation of the company and group’s financial statements that give a true and fair view of the matters to which theyrelate. We consider internal control in order to design audit p rocedures that are appropriate in the circumstances but not for the purpose of expressing an opinion onthe effectiveness of the Company and Group’s internal control.

An audit also involves evaluating:

– the appropriateness of accounting policies used and whether they have been consistently applied;

– the reasonableness of the significant accounting estimates and judgements made by the Board of Directors;

– the adequacy of all disclosures in the financial statements; and

– the overall presentation of the financial statements.

We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements. In accordance with the Financial Reporting Act 1993, wereport that we have obtained all the information and explanations we have required. We believe we have obtained sufficient and appropriate audit evidence to providea basis for our audit opinion.

Responsibilities of the Board of DirectorsThe Board of Directors is responsible for preparing financial statements that:

– comply with generally accepted accounting practice in New Zealand; and

– give a true and fair view of the company and group’s financial position, financial performance and cash flows.

The Board of Directors is also responsible for such internal control as it determines is necessary to enable the preparation of financial statements that are free frommaterial misstatement, whether due to fraud or error.

The Board of Directors’ responsibilities arise from the State-Owned Enterprises Act 1986 and the Financial Reporting Act 1993.

Responsibilities of the AuditorWe are responsible for expressing an independent opinion on the financial statements and reporting that opinion to you based on our audit. Our responsibility arisesfrom section 15 of the Public Audit Act 2001 and section 19(1) of the State-Owned Enterprises Act 1986.

IndependenceWhen carrying out the audit we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the New ZealandInstitute of Chartered Accountants.

In addition to the audit during 2012, we provided a graduate secondment as accounting support which was compatible with those independence requirements.Other than the audit and secondment, we have no relationship with or interests in the company or any of its subsidiaries.

Trevor DeedDeloitteOn behalf of the Auditor-GeneralWellington, New Zealand

Matters relating to the electronic presentation of the audited financial statementsThis audit report relates to the financial statements of Landcorp Farming Limited (the company) and group for the year ended 30 June 2012 included on the company’swebsite. The Board of Directors is responsible for the maintenance and integrity of the company‘s website. We have not been engaged to report on the integrity of thecompany’s website. We accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

The audit report refers only to the financial statements named above. It does not provide an opinion on any other information which may have been hyperlinked toor from the financial statements. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to thepublished hard copy of the audited financial statements and related audit report dated 27 August 2012 to confirm the information included in the audited financialstatements presented on this website.

Legislation in New Zealand governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.



Disclosures in Terms of the Companies Act 1993

Interests register (Section 211(1)(e))

Entries made in the interests register during the year covered particulars of directors’ interests, directors’ remuneration and directors’ and

officers’ liability insurance. Details are recorded under the separate headings below.

Directors’ interests (Section 140)

The following are particulars of general notices of disclosure of interest given by Landcorp directors during the year –

Director Organisation Position

Hon. J R Sutton CNZM Stone Hut Forest Investments Ltd Chairman and Shareholder

(Retired 30.04.2012)

A W Baylis Blackhead Quarries Ltd Chairman

Dairy Holdings Ltd Chairman

Edincorp Business Services Ltd Director

Institute of Directors Accreditation Board Chairman

Port of Tauranga Ltd Director and Shareholder Dunedin City Holdings Ltd Director

W A Larsen CNZM Air New Zealand Ltd Director and Shareholder

Alpine Energy Ltd Director

Centreport Ltd Chairman

Larsen Consulting Ltd Principal

NetCon Ltd Director

NZAEL Ltd Chairman

N P Davies-Colley Northpower Ltd Director

West Coast Energy Pty Ltd Director

Farmlands Trading Society Ltd Director

Whangarei Local Fibre Company Ltd Director

The Tree People Ltd Director and Shareholder Ngarakau Family Trust Trustee

C W Day Contact Energy Ltd Group Financial Controller

Hill End Investments Ltd Director and Shareholder

C W & CR Day Trust Trustee

P N Lockett New Plymouth District Council Councillor

Taranaki District Health Board Ministerial Appointment

J D Brakenridge The New Zealand Merino Company Ltd CEO

Medbury School Trust Board Member

Synlait Innovations Advisory Committee Member

T Houpapa Rural Broadband Initiative (RBI) National Advisory Committee Ministerial Appointment

MNZM, JP National Advisory Council on Employment of Woman Ministerial Appointment

Hamilton Sculpture Trust Trustee Pemberton Construction Ltd Director

Federation of Maori Authorities Inc. Chairman, Tainui Delegate

Te Uranga B2 Incorporation Committee of Management

Maori Women’s Welfare League Regional Executive Member

Global Agribusiness – PWC/Advisory Group Member

Strada Corporation Ltd Director

Nga Pae O Te Maramamatanga Centre of Research Excellence Director




DISCLOSURES IN TERMS OF THE COMPANIES ACT 1993 CONTINUED

Director Organisation Position

M L James Ikan Property Ltd Director and Shareholder

(Retired 30.04.2012) Farmers Mutual Group Ltd Director Staples Rodway (Taranaki) Ltd Director

TSB Community Trust Trustee

New Zealand Institute of Highway Technology Director

TSB Bank Ltd Director

J M Mitchell Loganburn Station Ltd Director & Shareholder

(Retired 30.04.2012) Te Hau Farm (Marlborough) Ltd Director & Shareholder

Okiwa Holdings Ltd Director & Shareholder

Clifford Bay Marine Farms Ltd Shareholder

Sport Otago Trustee

B J Morrison Basil J Morrison & Associates Principal

CNZM, JP Waiuta Farms Limited Director and Shareholder

NZ Geographic Board Member

Local Government Superannuation Trust Ltd Chairman

Waitangi Tribunal Member

Civic Assurance (NZ Local Government Insurance Corporation Ltd) Director

Local Government Commission Chairman

Republic of Uganda Honorary Consul

Use of company information (Section 145)

No requests were received from directors to use company information which they obtained in their capacity as directors and which would

not otherwise have been available to them.

Share dealings (Section 148)No director owned, acquired or disposed of equity securities in Landcorp Farming Ltd or its subsidiaries, Landcorp Pastoral Ltd, Landcorp

Developments Ltd, Landcorp Estates Ltd and Landcorp Holdings Ltd, during the year.



Directors’ remuneration and other benefits (Sections 161 and 211(1)(f))

Directors of Landcorp Farming Ltd received remuneration as recorded below. No remuneration or other benefits were paid to the directors

of Landcorp Estates Ltd, Landcorp Pastoral Ltd or Landcorp Holdings Ltd.

Dollars in thousands 2012 2011

Landcorp Farming Ltd

Baylis AW (appointed Chairman May 2012) 41 35

Sutton JR (former Chairman retired April 2012) 59 71

Larsen WA (Deputy Chairman) 47 47

Brakenridge JD (appointed May 2011) 35 6

Davies-Colley NP (appointed May 2012) 6 0

Day CW (appointed May 2012) 6 0

Clouston FRL (retired April 2011) 0 29

Houpapa T 35 35

James ML (retired April 2012) 33 40

Lockett PN 7 0Mitchell JM (retired April 2012) 29 35

Morrison BJ 35 35

The only other benefit received by directors during the year was the provision of an insurance cover for directors’ and officers’ liability.

Employees’ remuneration and other benefits (Section 211(1)(g))

Set out below are the numbers of employees and former employees whose total remuneration (including non-cash benefits and fringe benefit

tax) was within the specified bands –

Group Group

Dollars in thousands 2012 2011

100 – 109 14 11110 – 119 10 14

120 – 129 13 4

130 – 139 7 7

140 – 149 9 10

150 – 159 5 4

160 – 169 – 3

170 – 179 2 2

200 – 209 – 1

220 – 229 3 –

230 – 239 – 1

240 – 249 1 1

250 – 259 1 –

260 – 269 1 1280 – 289 1 1

580 – 589 – 1

610 – 619 1 –

Redundancy and leave payments are excluded from these figures.

Indemnity and insurance (Sections 162 and 211(1)(f))

During the year the Board resolved to continue with an insurance cover of $20 million to provide indemnity for directors’ and officers’ liability.

An additional $5 million insurance cover was added to meet any defence costs. The total premium costs are met by Landcorp.



Wellington Office

Livestock Farms

Dairy Units

92


Board of DirectorsBill BaylisChairman

Warren Larsen CNZMDeputy Chairman

John BrakenridgeNikki Davies-ColleyChris DayPauline LockettTraci Houpapa JPBasil Morrison CNZM, JP

Auditor

Trevor Deed(under appointment by theController and Auditor-General)DeloitteWellington

Solicitors

Buddle FindlayWellingtonRickit LawWellington

Bankers

Westpac Banking Corporation

ANZ National Bank Ltd

ASB Institutional Bank

Directory

Corporate andRegistered Office

15 Allen StreetPO Box 5349Wellington

Tel: (04) 381 4050Fax: (04) 384 1194

Executive Team

Chief Executive:

Chris Kelly

Chief Financial Officer:

Richard Perry

Company Secretary: John Kennedy-Good

National Manager –Strategy and

Performance:

Andrew MacPherson

National Business Managers:

Graeme MulliganAllan Still

National Manager – Technology

and Property:

Phil McKenzie

Websitewww.landcorp.co.nz



QUICK FACTS2011/12

Livestock numbersAT 30 JUNE 2012

Total animals 825,060

Sheep 575,629

Beef cattle 88,867

Dairy cattle* 50,352

Deer 110,212

* includes sharemilker cows

Hectares owned and leasedAS AT 30 JUNE 2012

Owned Leased

North Island 79,686 32,291

South Island 81,144 182,560

Total 160,830 214,851

Production in 2011/12TONNES

Milksolids 13,357

Venison 2,258

Sheep meat 10,176

Beef 9,715

Shorn wool 2,924

Velvet 12.0

Permanent staff

People 573

Landcorp operates

Farms over 3,000 ha 19

Farms with over 10,000 ewes 9

Dairy farms producing over 300,000 kg

of milksolids 22

Farms carrying over 20,000 stock units 17


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