Landcorp - Crown Ownership Monitoring Unit

LANDCORP FARMING LIMITED AND SUBSIDIARIESNOTES TO THE FINANCIAL STATEMENTS CONTINUEDNote 31 – Capital ManagementThe Group considers its capital as comprising all the components of Shareholders’ Equity and Redeemable Preference Shares (classified underNZ IFRS as a liability), as follows:Group Group Parent Parent2010 2009 2010 2009Comment $000 $000 $000 $000Share capital A 125,000 125,000 125,000 125,000Retained earnings B 100,292 106,167 225,400 243,064Revenue reserves C 68,792 78,758 67,922 79,054Fair value reserve D 1,409 1,444 3,741 3,762Asset revaluation reserves E 719,564 851,659 606,725 739,741Other equity F 222,114 196,621 210,755 185,262Total Shareholders’ Funds 1,237,171 1,359,649 1,239,543 1,375,883Redeemable preference shares G 100,408 90,408 100,408 90,408Total Managed Capital 1,337,579 1,450,057 1,339,951 1,466,291Under the State-Owned Enterprises Act, 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 a target interest cover ratio is achieved. Dividends are paid bythe Group to the level that the remaining debt to equity ratio provides the targeted interest cover ratio over the five-year Business Plan budgetperiod. Landcorp’s target for dividend payments is to pay up to 75% of net operating profit (after tax).COMPONENTS OF CAPITALA – Share CapitalThe Parent’s shareholding is held equally by the Minister of Finance and the Minister for State-Owned Enterprises in terms of the State-OwnedEnterprises 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:ParentParent2010 2009000 shares 000 sharesOrdinary shares 125,000 125,000B – Retained EarningsRetained earnings comprises Landcorp’s accumulated net profits (excluding profits from the revaluations of livestock and financial assets) lessdividends paid. By excluding these price revaluations, and the components of other equity (refer comment F), retained earnings is an approximatemeasure of the accumulated cash profits retained by Landcorp.C – Revenue ReservesLandcorp has chosen to classify the net revaluations of livestock (biological assets revaluation reserve) and derivatives (financial assets revaluationreserve) 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 notrepresent cash flows and, especially in the case of livestock, cannot be realised in the ordinary course of livestock farming.D – Fair Value ReserveThe 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 ReservesThe asset revaluation reserves are used to record changes in the fair value of individual land and buildings.F – Other EquityOther equity represents transfers from assets revaluation reserves of asset revaluations, when the associated asset is sold. Given that most ofLandcorp’s property sales reflect changes in the composition of land holdings, rather than reductions, these transfers are not usually realised ona 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 SharesRedeemable preference shares are used as a capital injection to compensate Landcorp for the land under the Agreement for Protected Land asdescribed in Note 30.84