Auckland Council Investments Limited

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STATEMENT OF INTENT

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For the period from 1 July 2011 to 30 June 2014

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1. Foreword Auckland Council Investments Limited (ACIL) owns large equity holdings in Ports of Auckland Limited (POAL) and Auckland International Airport Limited (AIAL), as well as an equity holding in Auckland Film Studios Limited (AFSL); and manages the diversified financial assets (DFA) portfolio on behalf of the Auckland Council1

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The purpose of ACIL is to support the Council’s vision and to bring a strong commercial focus to the ownership and management of the Auckland Council’s investments in POAL, AIAL, AFSL and the DFAP and to provide an efficient structure for the ownership of these assets. Sound commercial governance of these assets, within the parameters set by the Auckland Council (and acknowledging that Auckland Council/ACIL will be in a position of some influence, but not control, of AIAL), is important to provide substantial financial returns to the Council, ensuring that these investments are financially sustainable in the long term, and ensuring that they make a significant contribution to the Auckland economy. ACIL recognises the wider strategic significance of its assets and will strive to insure that its governance achieves their maximum contribution to the economic and social well-being of the region. __________________ Simon Allen Chairman

__________________ Gary Swift Chief Executive

1 the Council operates under a new decision-making model. The Governing Body and Local Boards share the decision-making responsibilities of Auckland Council. The Governing Body, comprising the Mayor and 20 elected members, focuses on region-wide strategic decisions. The Local Boards represent their local communities and make decisions on local issues, activities and facilities. Throughout the SOI, all references to the “Auckland Council” or the “Council” mean the Governing Body and local boards.

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2. STRATEGIC DIRECTION ACIL will contribute to Auckland Council’s vision “Auckland – the world’s most liveable city” by seeking to achieve the following outcome:

• The council’s equity investments in POAL, AIAL and AFLS and the DFAP are managed for the long-term benefit of Auckland.

To ensure that the outcome is achieved ACIL will aim to make the following two impacts:

1. The value of Auckland Council’s investments is maximised both in terms of short and long-term returns.

2. Relative to Auckland Council’s level of investment POAL, AIAL and AFSL make significant contributions to Auckland’s current and future economic and social well-being.

3. NATURE AND SCOPE OF ACTIVITIES This SOI covers Auckland Council Investments Limited and its two subsidiaries: Manukau City Investments Limited (MCIL) and Auckland Council Investments (AIAL) Limited (ACI (AIAL)). The ownership of ACIL’s equity investments by companies within the ACIL Group as at 1 July 2011 is shown in the following diagram:

Auckland Council Investments Limited

MCIL ACI (AIAL) POAL AFSL

AIAL

100% 100% 100% 44%

9.9% 12.6%

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In order to support the first impact, ACIL will endeavour to:

• Manage ACIL’s portfolio to maximise the return on investment but also maintain or increase the value of Auckland Council’s equity

• Lift the economic return from investments above Auckland Council’s Weighted Average Cost of Capital

• Distribute available income and other returns in a cost-effective manner (as agreed with Auckland Council)

• Manage the DFA (governed by the Statement of Investment Policies and Objectives (SIPO) agreed with Auckland Council) to maximize returns

In order to support the second impact, ACIL will endeavour to:

• Develop and implement a long-term strategy for POAL which seeks to:

− Improve POAL’s productivity

− Identify and resolve potential conflicts between POAL’s operational requirements and other waterfront activities and plans of strategic significance to the region, in conjunction with Auckland Council (and relevant CCOs)

• Assess the future of Auckland Council’s investment in AFSL

• Appoint directors to POAL and AFSL and exercise voting rights in AIAL to support ACIL’s objectives

• Provide advice to the Auckland Council Governing Body in relation to any major AIAL proposals

• Be accountable for prudent governance and management of Auckland Council’s investments

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4. PERFORMANCE MEASUREMENT ACIL’s performance measures are:

Outcome: The council’s equity investments in POAL, AIAL and AFLS and the DFA are managed for the long-term benefit of Auckland

What we are seeking to achieve – the impacts

What we will do to achieve it – the outputs

How we will demonstrate success in achieving it – the performance measures

When we will demonstrate the success – the milestones

The value of Auckland Council’s investments is maximised both in terms of short and longer-term returns

Manage ACIL’s portfolio to maximise the return on investment but also maintain or increase Auckland Council’s equity

Lift the economic return from investments above Auckland Council’s Weighted Average Cost of Capital

Distribute available income and other returns in a cost-effective manner (as agreed with Auckland Council)

Manage the DFA to meet the cash distribution requirements and return on investment requirements specified in the SIPO to be agreed with the Auckland Council

Operating Surplus over a three year period meets or exceeds $76.5 million measured prior to any change in the value of equity investments

% change in net value of investments held by ACIL is positive

Actual % return on investment exceeds AC’s WACC

Dividend distributions over a three year period meets or exceeds $77.1 million

Cash distributed to Auckland Council and return on the DFA meets or exceeds the performance benchmarks to be specified in the SIPO

By 30/06/2014

By 30/06/2014

By 30/06/2014 By 30/06/2014

Annually by 30 June

Relative to Auckland Council’s level of investment POAL, AIAL and AFSL make

Develop and implement a long-term strategy for POAL which seeks to:

• Identify and resolve potential conflicts

Long-term strategy for POAL is developed and key implementation milestones are identified2

Auckland Council is fully informed of the implications

By 30/09/2011

2 This has taken account of the following Strategic priorities for Council as required by the SOI:

• The relationship of the port to the city/waterfront; • The consequences for POAL operations of alternative/and transport modes (road versus rail); • Implications of expansion of the inland port versus waterfront operations; • Financial modelling (container volumes, breakbulk volumes, revenues); • Opportunities/implications of co-operation/alliance with Tauranga and Whangarei Ports; • The mix of businesses at the Waterfront location; and • Resolution on future timetable for converting Captain Cook wharf to public use.

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significant contributions to Auckland’s current and future economic and social well-being

between POAL’s operational requirements and other waterfront activities and plans of strategic significance to the region, in conjunction with Auckland Council (and relevant CCOs)

• Improve POAL’s productivity and profitability

Assess the future of Auckland Council’s investment in AFSL Appoint directors to POAL and AFSL and exercise voting rights in AIAL Provide advice to Auckland Council in relation to any major AIAL proposals Be accountable for prudent governance and management of Auckland Council’s investments

for POAL of any conflicts between POAL’s operational requirements and other waterfront activities and plans POAL Board considers options to resolve conflicts

POAL’s ROE3

increases from 6.3% to 12.0% over the following 5 years

POAL’s crane rate4

increases from 26.3 to 31.6 over the following 3 years

POAL’s vessel rate5

increases from 53.8 to 59.3 over the following 3 years

Options are identified and assessed and the Council is advised Auckland Council is kept fully informed and consulted in advance about proposed appointments and exercise of voting rights The Council is advised of implications of all major proposals All Auckland Council’s accountability requirements are met

As required

As required

By 30/06/2016 By 30/06/2014 By 30/06/2014 By 30/06/2012

As required

As required

Ongoing

Financial Performance ACIL’s budgeted financial targets for the three years are:

Target 30 June 2012 30 June 2013 30 June 2014

Operating surplus $24.2 million $26.2 million $26.1 million

3 ROE is calculated as normalised net profit after tax divided by closing equity 4 Crane rate is the number of container moves per hour (as reported by the Ministry of Transport) 5 Vessel rate is the number of containers per ship hours worked (as reported by the Ministry of Transport)

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Dividend distributed to the Council $24.4 million $26.4 million $26.3 million

Shareholder’s funds $1,027 million $1,027 million $1,027 million

Total Assets $1,331 million $1,331 million $1,331 million

The ratio of shareholder’s funds to total assets 77% 77% 77%

(The assets, liabilities, income and expenditure of POAL are not included in these targets. However, the net asset value of POAL is included in shareholder’s funds and total assets as well as the dividend received from POAL is included in the operating surplus. The POAL dividend is part of the dividend distributed to the Council)

ACIL has developed the financial targets using a number of assumptions (set out below) about the future and the achievement of these targets is dependant on events and actions that have not yet occurred and may not occur. The majority of the assumptions are outside of our control. The main assumptions around income are:

• The dividends from POAL are assumed to be $18 million per annum during the three year period

• The dividends from AIAL are assumed to be 8.5 cents per share in 2011/12, 9.2 cents per share in 2012/13 and 9.2 cents per share in 2013/14

The main assumptions around assets are:

• The forecast for the value of AIAL shares is based on the average brokers’ projection made by Credit Suisse and Goldman Sachs for June 2012 of $2.375 per share.

• The forecast for the values of the POAL and AFSL shares is based on maintaining the current value of these investments.

ACIL will reassess the total value of the shareholder’s funds on an annual basis. Although the table of performance measures contains a measure specifying that the percentage change in net value of investments held by ACIL will be positive, it is difficult to objectively set specific targets for the annual increase. As a result, the budgeted financial targets have been prepared on the basis that asset values at 30 June 2012 are maintained for the next two years.

ACIL will provide to the governing body a statement of intent, quarterly reports, half year reports and an annual report in accordance with the Accountability Policy and

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legislative requirements. ACIL will also prepare a ten year plan in accordance with the requirements of the Accountability Policy. 5. APPROACH TO GOVERNANCE

In undertaking its activities, ACIL will exhibit and ensure:

(a) Sound business practice in its commercial undertakings; (b) Sustainable business practice; (c) Ethical and good behaviour in dealing with all parties; (d) An open and transparent approach to decision-making, while respecting the

need for commercially sensitive information to be protected; (e) An active partnership approach with Auckland Council, other CCOs and key

stakeholders (f) An active partnership approach with iwi, where appropriate; (g) Adherence to the Auckland Council’s branding policy6

(h) that ACIL will act in accordance with relevant statutory provisions referring to the Treaty of Waitangi

; and

The Board’s goal generally, is to operate according to the best practice statements produced from time to time by the Institute of Directors in New Zealand. Management of strategic assets The assets held by ACIL that are strategic by definition under Auckland Council’s accountability policy are:

• Shares in POAL • Shares in AIAL • Freehold interest in waterfront land held by POAL • Scheduled buildings or structures owned by ACIL or its subsidiaries

ACIL will comply with the provisions of the Auckland Council’s Accountability Policy for Substantive CCOs in relation to the strategic assets. ACIL will comply with and take all reasonable steps to promote the Council’s Auckland Airport Shareholding Policy. In particular, ACIL will not make any decisions that are inconsistent with that policy. Decisions for which prior Governing Body approval is required ACIL will seek Council’s approval for the following decisions of ACIL:

• Decisions relating to strategic assets that require shareholder approval under the Auckland Council's accountability policy

• Decisions which in the judgement of the ACIL board may potentially have a moderate adverse effect on a large number of residents and ratepayers

6 including participation in a brand navigation group (BNG) to review the Auckland Council (and its CCOs’) brand strategy, brand performance measurement and supply efficiencies. The BNG will ensure all communications consistently reinforce the concept of One Auckland, and that any brand changes, additions or deletions are agreed by the Governing Body of the Auckland Council.

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• Decisions which in the judgement of the ACIL board may potentially have a large adverse effect on a small number of residents and ratepayers

• Decisions which have a history of generating wide public interest in the judgement of the ACIL board

• Decisions which will affect ACIL's ability to meet any statutory responsibility

• Decisions which will impact on any intended service levels for ACIL's activities (except if the effect in the judgement of the ACIL board will be minor)

• Decisions which will commit the council to future provision of funding which has not already been agreed

Possible decisions that we anticipate will require shareholder approval during the period of this statement of intent are: • Any decision to sell all or part of Auckland Film Studios Limited or to acquire

additional shares. Procedures for purchasing shares in other companies Where ACIL identifies investment opportunities and considers that Auckland Council will benefit from them, ACIL will evaluate the options, present them to the Governing Body and seek approval to proceed with the purchase. 6. ENGAGEMENT WITH THE SHAREHOLDER Engagement with the Governing Body ACIL will subject to its legal obligations:

• comply with the Auckland Council’s policies and procedures where applicable • meet the Auckland Council’s planning and reporting requirements • adhere to the "no surprises" approach in relationships with the Auckland

Council • contribute to the development of the Spatial Plan by ensuring that the

objectives of the companies in which ACIL holds equity interests are communicated to the Auckland Council

• follow the Auckland Council Board Appointments and Remuneration Policy when making appointments to subsidiary boards

• contribute to the development of Annual Plans and the Long-Term Plan and give effect to the Long Term Plan

• act consistently with other relevant plans and policies of the Council • prepare joint submissions to external agencies where required

ACIL will provide Auckland Council with information on its return from equity and financial investments. ACIL will operate within budget and inform the Governing Body, if in the judgement of the board it takes on significant additional risk.

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It is anticipated that ACIL will seek compensation from the Auckland Council for the management of the Diversified Financial Assets portfolio on behalf of the Auckland Council. ACIL reserves the right to seek compensation from time to time for the necessity to provide any service required by the Auckland Council where we are constrained from acting in a normal, business-like manner. Engagement with local boards While ACIL is charged with taking a regional approach in undertaking its activities, it will endeavour to ensure that POAL, AIAL and ASFL are sensitive to the needs of local areas. To this end, ACIL will endeavour to ensure that they take account of the priorities identified in each Local Board Plan, as well as the key objectives and activities in each Local Board agreement where relevant. ACIL will:

• take account of the key objectives and activities outlined in each of the Local Board Agreements, to the extent that ACIL is accountable for their delivery

• prepare a Local Board Engagement Plan which will provide an overarching framework to guide engagement between ACIL and local boards. It will be aligned with Council guidance provided

• provide Local Boards with copies of the various reports that we are required to submit to the Governing Body, if requested by the Governing Body. Due to the nature of our business, we will receive some information, which is commercially sensitive and subject to confidentiality restrictions and we will need to respect these

• provide the Local Boards with access to information in accordance with our obligations under the Local Government and Official Meetings Act 1987

The Local Board Engagement Plan will cover the following:

• General information about ACIL • Frequency of meetings with Local Boards • Communications with Local Boards

7. ENGAGEMENT WITH KEY EXTERNAL STAKEHOLDERS Engagement with other council-controlled organisations Our relationship with fellow Council controlled organisations and in particular, Auckland Transport; Waterfront Development Agency; and Auckland Tourism, Events and Economic Development, will be cooperative and collaborative. We will collaborate as appropriate to achieve joint outcomes, for example in relation to addressing the needs of POAL relative to other competing interests.

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Engagement with Independent Maori Statutory Board (IMSB) ACIL will take account of the IMSB’s schedule of issues of significance and any statutory Treaty provisions that are relevant to its activities and where appropriate engage with the IMSB on these matters. Engagement with Council’s Advisory Panels ACIL will inform, and where appropriate discuss issues of particular interest to the council’s Pasifika, Ethnic, Youth, Business, Rural and Disability Panels with them. Engagement with central government Where appropriate and relevant, ACIL will engage with central government and seek their input to meet its objectives. Engagement with the public ACIL is committed to transparency, particularly in regard to holding as many board meetings in public as practical in accordance with the guidelines provided by the Mayor. In addition, ACIL will hold two specific public meetings. These are for the purpose of considering comments from the Council on ACIL’s draft SOI and reviewing ACIL’s performance against the previous financial year’s SOI.

These two meetings are to be held on:

• 3 June 2011 • 5 October 2011

The meetings will be advertised on Auckland Council’s website and through the public notices section of the New Zealand Herald five days prior to the meeting date. Documents to be tabled at these meetings will be available on the website and from ACIL on request. 8. ORGANISATIONAL HEALTH AND CAPABILITY ACIL will commit to building and maintaining an enduring and resilient organisation. Even though ACIL is a relatively small organisation, the importance of staff well-being and professional development is recognised. ACIL will participate in Auckland Council’s staff satisfaction surveys to monitor organisational health and capability. ACIL will operate a personnel policy that complies with the principle of being a good employer. For the purposes of section 59(1)(b) of the Local Government Act 2002, a good employer means an employer who operates a personnel policy containing provisions

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generally accepted as necessary for the fair and proper treatment of employees in all aspects of their employment, including provisions requiring—

(a) good and safe working conditions; and (b) an equal employment opportunities programme; and (c) the impartial selection of suitably qualified persons for appointment; and (d) recognition of—

(i) the aims and aspirations of Māori; and (ii) the employment requirements of Māori; and (iii) the need for greater involvement of Māori in local government

employment; and (e) opportunities for the enhancement of the abilities of individual employees;

and (f) recognition of the aims and aspirations, and the cultural differences, of ethnic

or minority groups; and (g) recognition of the employment requirements of women; and (h) recognition of the employment requirements of persons with disabilities.

In addition to these requirements, ACIL,—

(a) when making an appointment, must give preference to the person who is best suited to the position; and

(b) must ensure that all employees maintain proper standards of integrity, conduct, and concern for the public interest.

9. ACCOUNTING POLICIES ACIL’s draft accounting policies prepared by Auckland Council are outlined in Attachment 1. These should be considered as draft accounting policies until Auckland Council has had the opportunity to review and confirm them.

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Attachment 1

Summary of Significant Accounting Policies for the period ending 30 June 2012

1.0 Genera l in formation Auckland Council Investment Limited (ACIL) is a Council Controlled Organisation of the Auckland Council (“the Council”) and is domiciled in New Zealand. Reporting entity The financial statements are for ACIL, its subsidiaries and interests in associates and joint ventures (group). Where individual financial statements of group entities are prepared using accounting policies different from those of Auckland City Council, appropriate adjustments are made on consolidation to ensure uniform accounting policies have been applied.

2.0 Bas is o f p repara tion The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. Statement of compliance The financial statements of ACIL have been prepared in accordance with the requirements of the Local Government Act 2002, which includes the requirement to comply with New Zealand generally accepted accounting practice (NZ GAAP). The financial statements comply with NZ IFRS, and other applicable financial reporting standards, as applicable for public-benefit entities.

Measurement base The financial statements have been prepared based on historical cost modified by the revaluation of investments.

• financial assets and liabilities at fair value • derivative financial instruments at fair value • certain classes of property, plant and equipment at methods appropriate to the class of asset • investment property at fair value. The methods used to measure fair value are discussed in the specific accounting policies.

Use of estimates and judgements The preparation of financial statements requires the council’s management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.

Budget figures The budget figures are those approved by Auckland City Council at the beginning of the year after consultation with the public as part of the planning process. The budget figures have been prepared in accordance with NZ GAAP and are consistent with the accounting policies adopted by Auckland City Council for the preparation of the financial statements

Costs allocation Cost of service for each significant activity was allocated as follows:

• Direct costs are charged directly to significant activities. Indirect costs are charged to significant activities using appropriate cost drivers such as actual usage, staff numbers and floor area. • Direct costs are those costs directly attributable to a significant activity. Indirect costs are those costs that cannot be identified in an economically feasible manner with a specific significant activity.

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Changes in accounting policies The Council and group has adopted the following revisions to accounting standards during the financial year, which have had only a presentational or disclosure effect: • Amendments to NZ IFRS 7 Financial Instruments: Disclosures. The amendments introduce a three-level fair value disclosure hierarchy that distinguishes fair value measurements by the significance of valuation inputs used. A maturity analysis of financial assets is also required to be prepared if this information is necessary to enable users of the financial statements to evaluate the nature and extent of liquidity risk. The transitional provisions of the amendment do not require disclosure of comparative information in the first year of application. The Council and group has elected to disclose comparative information. Standards, amendments, and interpretations issued that are not yet effective and have not been early adopted Standards, amendments, and interpretations issued but not yet effective that have not been early adopted, andwhich are relevant to the Council and group, are: • NZ IFRS 9 Financial Instruments will eventually replace NZ IAS 39 Financial Instruments: Recognition and Measurement. NZ IAS 39 is being replaced through the following 3 main phases: Phase 1 Classification and Measurement, Phase 2 Impairment Methodology, and Phase 3 Hedge Accounting. Phase 1 on the classification and measurement of financial assets has been completed and has been published in the new financial instrument standard NZ IFRS 9. NZ IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in NZ IAS 39. The approach in NZ IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in NZ IAS 39. The new standard is required to be adopted for the year ended 30 June 2014. Auckland City Council has not yet assessed the effect of the new standard and expects it will not be early adopted. • NZ IAS 24 Related Party Disclosures (Revised 2009) replaces NZ IAS 24 Related Party Disclosures (Issued 2004). The revised standard simplifies the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition. Comparative information ACIL commenced operations on 1 November 2010 and this is the first reporting period. Accordingly there are no comparative figures and no accounting policy changes. On creation of ACIL, as at 1 November 2010, the assets and the liabilities of the dissolved above named Councils were transferred to ACIL. On the date of transfer, these assets and liabilities were recorded at their previous carrying values in the financial statements of the predecessor Councils with adjustments made where necessary to ensure that the assets and liabilities were recorded using consistent accounting policies adopted by the Group. a.) New and amended standards adopted by ACIL (to be set out at the time) b.) Standards and interpretation issues not yet adopted (to be set out at the time) Foreign currency translation Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities are recognised in the statement of comprehensive income.

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3.0 Significant accounting policies Principles of consolidation Subs idiaries

Subsidiaries are those entities in which ACIL has control. Subsidiaries are consolidated from the date ACIL gains control and cease to be consolidated from the date that control ends.

The ACIL financial statements show investment in subsidiaries at fair value..

The financial statements incorporate the results, assets and liabilities of all ACIL subsidiaries.

Associates and joint ventures Associates as used in the financial statements and notes include joint ventures.

Associates are entities in which ACIL has significant influence but not control over operating and financial policies. A joint venture is a contractual arrangement where two or more parties undertake an activity that is subject to joint control.

The ACIL financial statements show investment in associates and joint ventures at fair value.

The group’s share of the net surplus of associates and joint ventures is recorded in the consolidated financial statements using the equity method of accounting. Under the equity method, ACIL records the share of the profits or losses of the investee in the statement of comprehensive income, and the share of movements in equity in the statement of financial position.

In ter-company trans actions

Inter-company transactions, balances and unrealised gains on transactions between group entities are eliminated. Unrealised losses are also eliminated, unless the transaction provides evidence of the impairment of the asset transferred.

Acquis itions

The purchase method of accounting is used to account for all acquisitions (including business combinations) regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, or liabilities incurred or assumed, on the date of exchange, plus direct costs of the acquisition.

Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values on the acquisition date. This is irrespective of the extent of any non-controlling interest. ACIL records the excess of the cost of acquisition over the fair value of the group’s share of the identifiable net assets acquired, as goodwill. If the cost of acquisition is less than the fair value of the net assets acquired, the difference is recorded in the statement of comprehensive income but only after reassessing the identification and measurement of the net assets acquired.

Where settlement by cash consideration is deferred, the amounts payable in the future are discounted to their present value at the date of exchange. The discount rate used is ACIL’s incremental borrowing rate, being the rate at which a similar amount could be borrowed in an open market under comparable terms and conditions.

Foreign currency translation ACIL translates its foreign currency transactions into New Zealand dollars using the exchange rates at the dates of the transactions. It records foreign exchange gains and losses from the settlement of transactions, and from translation at year-end exchange rates, in the statement of comprehensive income.

Goods and services tax (GST) Items in the financial statements are exclusive of GST, with the exception of receivables and payables. The net amount of GST receivable from, or payable to the Inland Revenue Department is included as part of receivables or payables in the statement of financial position. Where GST is not recoverable as input tax, it is recognised as part of the related asset or expense.

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Property, plant and equipment Additions

The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential associated with the item will flow to ACILand the cost of the item can be measured reliably. In most instances, an item of property, plant and equipment is recognised at its cost. Where an asset is acquired at no cost, or for a nominal cost, it is recognised at fair value at the date of acquisition.

Subs equent cos ts

Subsequent costs are included in the asset’s carrying amount, or recognised as a separate asset, when it is likely future economic benefits associated with the item will flow to the group, and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income for the financial period they relate to.

Valuation of as s e ts

ACIL accounts for revaluations on a class of assets basis.

Land and buildings are valued by registered valuers. Other assets are valued by independent assessors specialising in those areas.

Values calculated at depreciated replacement cost are not market related. This applies to certain specialist assets, such as infrastructure assets and specialised buildings, which do not trade readily in the market.

Unless otherwise noted, valuation is on a rolling basis over a three-year cycle, with a portion of the portfolio valued at 30 June each year. Each year, ACIL considers the adequacy of the valuation of its assets to ensure their carrying value reflects fair value.

Any accumulated depreciation at the date of revaluation is transferred to the gross carrying amount of the asset, and the asset cost is restated to the revalued amount.

Increases in asset carrying amounts due to revaluation increase revaluation reserves in equity. Decreases in asset carrying amounts decrease revaluation reserves in equity only to the extent that the class of assets has sufficient revaluation reserves to absorb the reduction. All other decreases are charged to the statement of comprehensive income.

If a revaluation increase reverses a decrease previously recognised in the statement of comprehensive income, the increase is recognised first in the statement of comprehensive income to reverse previous decreases. Any residual increase is applied to revaluation reserves in equity.

4.0 Types of assets Land and build ings Land and buildings – other Land and buildings (except for investment properties) are shown at fair value based on rolling valuations by independent external valuers, less depreciation for buildings. Certain specialist buildings that do not trade readily in the market are valued using depreciated replacement cost. Land is not depreciated. Plant

Plant includes structures and fittings located in parks. These assets are depreciated over their useful lives.

Computer equipment, office equipment, furniture and fittings , and motor vehic les and machinery

Computer equipment, office equipment, furniture and fittings, and motor vehicles and machinery are recorded at cost. These assets are depreciated over their useful lives.

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Depreciation Assets are depreciated on a straight-line basis. Depreciation writes off the cost of the assets to residual value over their useful lives.

Expected us eful

life (years )

Buildings 10 – 100

Plant 5 – 50

Computer equipment 3 – 8

Office equipment, furniture and fittings

5 – 15

Motor vehicles and machinery 5 – 10

1 ACIL reviews and, if necessary, adjusts the assets’ residual values and useful lives at each year-end.

Sale or disposal of assets Gains and losses on the sale or disposal of assets are determined by comparing the proceeds of sale with the asset’s carrying amount. Gains and losses are included in the statement of comprehensive income. When a revalued asset is sold or disposed of, any amount in the revaluation reserves in equity relating to that asset is transferred to general equity.

Investment property Investment property is held for long-term rental yields and is not occupied by the group. Properties leased to third parties under operating leases are generally not classified as investment property because:

• the occupants provide services that are integral to the operation of ACIL’s business, or these services could not be provided efficiently and effectively by the lessee in another location • the property is being held for future delivery of services • the lessee uses ACIL’s services and those services are integral to the reasons for their occupancy of the property. Investment property is initially recorded at cost, including transaction costs.

After initial recognition, it is carried at fair value, representing open-market value determined annually by independent external valuers. Changes in fair values are recorded in the statement of comprehensive income.

Right to acquire asset This asset is the right to acquire physical assets owned, managed and operated by a third party.

The asset is recorded in the financial statements as intangible assets as follows.

• The component relating to the residual value of the asset is recorded at cost. This will be subject to impairment testing, taking into account the third-party requirement to maintain the asset’s service potential and return the asset in identical condition. • The component relating to the service potential to be received over the concession period (up to the time the asset reverts to ACIL) is recorded at cost less impairment losses.

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Intangible assets Intangible assets are initially recorded at cost. Where acquired in a business combination, the cost is their fair value at the date of acquisition. The cost of an internally generated intangible asset represents expenditure incurred in the development phase only.

Subsequent to initial recognition, intangible assets with finite useful lives are recorded at cost, less any amortisation and impairment losses, and are reviewed annually for impairment losses. Assets with indefinite useful lives are not amortised but are tested, at least annually, for impairment, and are carried at cost, less accumulated impairment losses.

Realised gains and losses arising from the disposal of intangible assets are recognised in the statement of comprehensive income in the period in which the disposal occurs.

Where an intangible asset's recoverable amount is less than its carrying amount, it will be reported at its recoverable amount and an impairment loss will be recognised. Losses resulting from impairment are reported in the statement of comprehensive income.

Computer s oftware

Computer software licences are capitalised based on the costs incurred to acquire and install the specific software. These costs are amortised using the straight-line method over their estimated useful lives (three to five years).

Costs associated with maintaining computer software programmes are recognised as an expense.

Costs directly associated with the development of identifiable and unique software products controlled by the group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets (eg software development employee costs). Computer software development costs recognised as assets are amortised using the straight-line method over their estimated useful lives (not exceeding eight years). Staff training costs are recognised as an expense when incurred.

Rights to occupy Rights to occupy have an indefinite life. Rather than the rights to occupy being written off over a period of time, these assets are recorded at cost and tested annually to assess whether there has been an impairment of value. This is done by comparing the carrying amount of the asset with the recoverable amount. Community rights

Community rights are contracted rights of access to facilities that are not owned by ACIL. These assets are recorded at cost and amortised on a straight line basis over the term of the contracted right (ranging from 4 to 20 years).

Goodwill Goodwill arises on the acquisition of subsidiaries, associates and joint ventures.

Goodwill represents the excess of the purchase price, over the fair value of the net tangible and identifiable intangible assets, on the acquisition of a business or an equity interest in a subsidiary.

Goodwill is recognised as an asset at cost and tested for impairment at least annually. Any impairment is recognised as an expense. Impairment losses on goodwill are not reversed. Goodwill arising on acquisitions before the date of transition to NZ IFRS has been retained at the previous NZ FRS amounts, subject to being tested for impairment at that date.

Impairment of property, plant and equipment, and intangible assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that have a finite useful life are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. An impairment loss is recognised if the estimated recoverable amount of an asset is less than its carrying amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.

Value in use is depreciated replacement cost for an asset, where the future economic benefits or service potential of the asset are not primarily dependent on the asset’s ability to generate net cash inflows, and where the entity would, if deprived of the asset, replace its remaining future economic benefits or service

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potential. The value in use for cash-generating assets is the present value of expected future cash flows.

If an asset’s carrying amount exceeds its recoverable amount, the asset is impaired and the carrying amount is written down to the recoverable amount. For revalued assets, the impairment loss is recognised against the revaluation reserve for that class of asset. Where that results in a debit balance in the revaluation reserve, the debit balance is recognised in the statement of comprehensive income. For assets not carried at a revalued amount, the total impairment loss is recognised in the statement of comprehensive income.

The reversal of an impairment loss on a revalued asset is credited to the revaluation reserve. However, to the extent that an impairment loss for that class of asset was previously recognised in the statement of comprehensive income, a reversal of the impairment loss is also recognised in the statement of comprehensive income. For assets not carried at a revalued amount (other than goodwill), the reversal of an impairment loss is recognised in the statement of comprehensive income.

5.0 Financial assets ACIL classifies its financial assets in the following categories:

• financial assets at fair value through surplus or deficit through other comprehensive income

• loans and receivables • held-to-maturity investments. The classification depends on the reason behind acquiring the investment. ACIL decides how to classify its investments when they are acquired.

Purchases and sales of investments are recorded on the value date at fair value plus transaction costs, unless they are carried at fair value through surplus or deficit, in which case the transaction costs are recognised in the statement of comprehensive income. Financial assets are no longer recognised when the right to receive cash flows from the financial assets has expired or has been transferred.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the group establishes fair value through valuation techniques.

At each year-end, the group assesses whether there is evidence that a financial asset or group of financial assets is impaired. Any impairment loss is recognised in the statement of comprehensive income.

Financia l a s s e ts a t fa ir va lue through s urplus or defic it

This category has two subcategories: financial assets held for trading (assumed fair value), and those designated at fair value through surplus or deficit. A financial asset falls in this category if acquired principally to sell in the short term, or if designated this way by ACIL. After initial recognition, these financial assets are measured at fair value. They are classified as current assets if they are held for trading or expected to be realised within 12 months of the year-end date.

Financia l a s s e ts a t fa ir va lue through other comprehens ive income

Financial assets at fair value through other comprehensive income are non-derivative assets designated in this category or not classified in the other categories. After initial recognition, they are measured at fair value. They are included in non-current assets, unless ACIL intends to dispose of the asset within 12 months of year-end. ACIL’s financial assets at fair value through other comprehensive income comprise investments in quoted and unquoted shares and marketable securities. ACIL’s investments in subsidiaries and associates are not included in this category as they are held at cost.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments not quoted in an active market. They arise when the group provides money, goods or services directly to a debtor with no intention of selling the receivable asset. After initial recognition, they are measured at amortised cost using the effective interest method less impairment. Gains and losses are recognised in the statement of comprehensive income. Loans and receivables are included in current assets, except

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for those with maturities greater than 12 months after the year-end date, which are classified as non-current assets.

Held-to-maturity inves tments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments, and fixed maturities that the group’s management has the intention and ability to hold to maturity. After initial recognition, they are measured at amortised cost using the effective interest method.

6.0 Derivative financial instruments and hedging activities ACIL uses derivative financial instruments to hedge exposure to interest rate risk arising from financing activities.

ACIL does not hold or issue derivative financial instruments for trading purposes. Derivatives, such as interest rate swaps, are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value.

When a derivative is entered into hedging activity, the group documents a hedge relationship as either a cash flow hedge (hedge of a forecast transaction) or a fair value hedge (hedge of the fair value of a recognised asset or liability). Also documented are the nature of the risk being hedged, its risk-management objective, strategy for hedge transactions, identification of the hedging instrument and hedged item, and how the hedging instrument‘s effectiveness is to be assessed.

The fair value of financial instruments traded in active markets is based on quoted market prices at the year-end date. The quoted market price used for financial assets held by the group is the current bid price. The quoted market price for financial liabilities is the current ask price.

Cas h flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recorded in the statement of comprehensive income.

When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets accounting criteria, any cumulative gain or loss in equity at that time remains in equity and is recognised when the forecast transaction is recorded in the statement of comprehensive income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss reported in equity transfers to the statement of comprehensive income.

Fair value hedge

The ACIL group only applies fair value hedge accounting for hedging fixed interest risk on borrowings. The gain or loss relating to the effective portion of the interest rate swaps that hedge fixed-rate borrowings is recognised in the statement of comprehensive income within “finance costs”. The gain or loss relating to the ineffective portion is recognised in the statement of comprehensive income within ”other gains/(losses)”. Changes in the fair value of the hedged fixed-rate borrowings attributable to interest rate risk are recognised in the statement of comprehensive income within “finance costs”.

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is recorded in the statement of comprehensive income.

Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the statement of comprehensive income within “other gains/(losses)”.

7.0 Trade and other receivables Trade and other receivables are recognised initially at fair value, and subsequently measured at amortised cost less any provision for impairment. They are due for settlement no more than 30 days from the date of recognition.

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ACIL reviews the collection of trade receivables on an ongoing basis and writes off debts known to be uncollectable. A provision is made for doubtful receivables when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. The amount provided is the difference between the receivable’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. This amount provided is recorded in the statement of comprehensive income.

The carrying amount of the asset is reduced through the use of a provision account, and the amount of the loss is recognised in the statement of comprehensive income. When a receivable is uncollectable, it is written off against the provision account.

8.0 Inven tories

Inventories held for distribution or consumption in the provision of services that are not supplied on a commercial basis are measured at the lower of cost and current replacement cost.

Inventories held for use in the production of goods and services on a commercial basis are valued at the lower of cost or cost adjusted for any loss of service potential.

The amount of any write-down in the value of inventories is recognised in the statement of comprehensive income.

9.0 Cash and cash equivalents Cash and cash equivalents include cash on hand and deposits held at call with financial institutions. They also include other short-term, highly liquid investments (with original maturities of three months or less that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value) and bank overdrafts.

10.0 Non-current assets held for sale Non-current assets held for sale are classified this way if their carrying amount will be recovered principally through a sale transaction, not through continuing use. They are measured at the lower of their carrying amount and fair value, less selling costs.

Any reduction in asset value is recognised as an impairment loss.

A gain is recognised for any subsequent increases in fair value, less costs of sale, but not in excess of any cumulative impairment loss previously recognised.

A gain or loss not previously recognised by the date of the sale of the non-current asset is recognised at the date of sale.

Non-current assets held for sale are not depreciated or amortised. Interest and other expenses continue to be recognised if they relate to the liabilities of a disposal group classified as held for sale.

Non-current assets held for sale, and assets of a disposal group classified as held for sale, are disclosed separately from other assets in the statement of financial position. In addition, the liabilities of a disposal group classified as held for sale are disclosed separately from other liabilities in the statement of financial position.

11.0 Shareholders’ equity Equity is the shareholders’ interest in the ACIL group and is measured as the difference between total assets and total liabilities.

Reserves are a component of equity that generally represent a particular use to which various parts of equity have been assigned.

12.0 Borrowings Borrowings are initially recognised at fair value (net of transaction costs) and subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and amortised cost is

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recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the year-end date.

13.0 Provisions Provisions are recognised when:

• the group has a present legal or constructive obligation due to past events • it is more likely than not that an outflow of resources will be required to settle the obligation • the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditure expected to settle the obligation, using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

14.0 Income tax The income tax expense is the tax payable on the current period’s taxable income, based on the New Zealand tax rate, and adjusted for changes in deferred tax assets and liabilities, and adjustments to income tax payable in respect of prior years.

Deferred tax assets and liabilities account for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities settled. This is based on those tax rates set by the government. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability.

An exception is made for certain temporary differences from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they came from a transaction, other than a business combination, that at the time of the transaction did not affect accounting profit or taxable profit and loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only to the extent it is likely that future taxable amounts will be available for ACIL.

Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities, where the council is able to control the timing of the reversal of the temporary differences, and it is likely the differences will not reverse in the near future.

Current and deferred tax balances attributable to amounts recognised directly in equity, such as asset revaluations, are also recognised directly in equity.

15.0 Trade and other payables These amounts represent unpaid liabilities for goods and services provided to the group before the end of the financial year. The amounts are unsecured and usually paid within 30 days of recognition. Trade and other payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method.

16.0 Employee benefit liabilities Short-term employee benefit liabilities

These include wages and salaries, annual leave and sick leave. These liabilities are expected to be settled within 12 months of the reporting date. They include employees' services up to the year-end date and are measured at the amounts ACIL expects to pay when the liabilities are settled. A liability is recognised for bonuses where they are contractually obliged or where there is a past practice that has created a constructive obligation. ACIL recognises a liability for sick leave to the extent that absences in the coming year are expected to be greater than the sick leave entitlements earned in the coming year. The amount is calculated based on the unused sick leave entitlement that can be carried forward at balance date, to the extent that ACIL anticipates it will be used by staff to cover those future absences.

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Long-term employee entitlements

Entitlements that are payable beyond 12 months such as long-service leave have been actuarially measured as the present value of expected future payments for services provided by employees up to the year-end date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service.

Retirement benefit

A number of current and former employees of the group are entitled to benefits, on retirement, disability or death, from the group’s multi-employer benefit scheme. The group has insufficient information and cannot follow defined benefit accounting, so the scheme is accounted for as a defined contribution plan.

Contributions are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset, if a cash refund or a reduction in the future payments is available.

17.0 Revenue ACIL measures revenue at the fair value of the amounts received or receivable, net of discounts, duties and taxes paid. It accounts for revenue for the major activities as follows:

• rental revenue – for the period it relates to • sale of goods – when the risks and rewards of the ownership of the goods pass to the purchaser • interest income – on a time-proportion basis using the effective interest method • dividend income – when the right to receive payment is established • royalty income – on an accruals basis in accordance with the royalty agreements • development and financial contributions – are recognised when the council provides or is able to

provide the service for which the contribution was charged. Otherwise, development and financial contributions are recognised as liabilities until such time the council provides, or is able to provide the service.

• vested assets and charitable receipts – when received • grants and subsidies – received in relation to the provision of services are recognised on a

percentage of completion basis. Other grants and subsidies are recognised when receivable • contra transactions – are measured at the fair value of the assets received or the fair value of goods

given up. 18.0 Leases Operating leas es

With operating leases, the lessor retains the risks and benefits of ownership. Lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the period of the lease.

Finance leas es

Finance leases effectively transfer to the lessee the risks and benefits incidental to ownership. These are capitalised at the lesser of the fair value of the asset or the present value of the minimum lease payments. The leased assets and corresponding liabilities are recognised in the statement of financial position. Interest on finance leases is charged to the statement of comprehensive income over the lease period.

Leased assets are depreciated over the period ACIL is expected to benefit from their use.

Finance costs Borrowing costs directly attributable to the acquisition or construction of qualifying assets, which are capital projects that span more than one financial year and require funding of more than $2 million, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.